Paul Krugman has an excellent post regarding the incentives of marginal tax rates. He shows that marginal tax rates are highest on low income people trying to wean themselves off welfare programs. I wrote about this before: Catch-22 for Poor in America. Krugman also talks about how the rich don’t do anything special in the economy; they spend money and this (along with the spending of everyone else) is the engine of the economy, not all the people many of the rich employ.

I want to add something that I think is rarely stated—but is sometimes. I’ve had several of my own small businesses with some amount of success. I grew up in a household of small business people. And I’ve worked for a lot of small businesses. The one thing I can tell you is this:

Why is this? Because hiring an employee costs money. If you can make do with your existing resources, you will make more money. It is as simple as that.

I’ve never known a business owner who worried about what his tax rate was when making a business decision. And he would be mad to be worried about this. Here is the question: am I making money? He may not be happy that he will have to give the government a bunch of money at the end of the quarter, but that’s another question. And it is certainly not the case that an employer worries about the cost of an employee one or two or three years from now. If the employee is no longer a profitable investment, the employer will just lay him off.

At the heart of this is the fact that the employer will not hire anyone unless someone else is buying what he has to sell. That means when you buy can of soda or a screwdriver, you are a job creator—every bit as much as someone who explicitly employs people. Because here’s the thing: when you buy that Coca Cola, you are hiring the Coca Cola Bottling Company to provide it. Yes, there are a lot of middlemen between you and the employees who actually make and bottle the stuff, but that doesn’t matter.

I find this so aggravating! Every time I hear the clause “job creator” I have to stop myself from screaming. It’s true that the rich are job creators. The problem is that since the rich don’t spend all their money (Why else would they invest in bonds with negative real interest rates?) they are actually far less effective job creators than the poor.

Update (13 July 2012 8:30 am)

Paul Krugman backs up my basic argument in today’s column, although he doesn’t go as far:

Image reduced from a nice big one on Thurman’s Notebook.

I spent the day—the whole day—doing things I will write about tomorrow. But I know how depressed you all get if I don’t provide something here to gnaw on. I was just thinking that Orson Welles and Shakespeare are very similar in that they burn so brightly at times but overall are disappointing (although one not nearly as so much as the other—regular readers will know which is which).

Macbeth is my favorite of Shakespeare’s plays, perhaps largely because I am rather conservative and Macbeth is the closest Shakespeare ever came to writing a classical tragedy. In addition to being the most watchable of his plays, Macbeth also has great moments.

Here is one of the best from the middle of Act 5. Macbeth’s world is falling apart and he has just been told of Lady Macbeth’s death. He speaks more truth than is heard in all the rest of Shakespeare:

Here is Ian McKellen doing his thang the only way he can do it:

The bitterness of it! Yea team!

Update (Right Away)

I’m no Patrick Stewart fan, but his version of this speech is really worth checking out. It is light on the bitterness and heavy on the sadness. It is always interesting to see how great actors do the same text.

Let me come right and say it: if it weren’t for the hair, Bobby Goldsboro would be cool—or at least a whole lot more cool than most people think he is. Let’s look at the facts. He got his start in music as guitarist and band leader for Roy Orbison. That’s very cool. And much of his work is solid. Sure, With Pen in Hand can be embarrassing, but who else was singing about divorce ins 1968?

What’s more, The Bobby Goldsboro Show featured Jim Henson with a basset hound. (Or not; I can’t find any reference to it, but I remember reading this.)

Anyway, here is Mr. Goldsboro doing his song Summer (The First Time):

Two or Three or Four Things

I think there are two things that stop people from admitting that Goldsboro is cool. First is that mustache that he’s been sporting the last several decades. Second there are the lyrics to Honey. And the choir. Third, there is Watching Scotty Grow. But these were not Goldsboro compositions.

Fourth there is See the Funny Little Clown, which he did write.

Okay! I’ll admit: Miles Davis he ain’t. And I’ll admit he doesn’t have a single song that is great. Sometimes success ruins an artist, although I’d rather be rich than great. It does seem that his best work is all forgotten. I recall a song off Honey called Run to Me that I think was good. Unfortunately, I can’t find it on YouTube. In fact, about the only thing you can find there is Honey.

Now Bobby Goldsboro seems more focused on his painting, which doesn’t suck but isn’t terribly compelling either. And maybe that’s just who he is: not bad but not great. Which is a hell of a lot more than most of us can say.

Here is a quote I got from The Great Divergence. It is Willford I. King in an article for American Economic Review:

Two things about this. First, he used “data” as a plural. Hooray for science! Second, Shakespeare used the word “and” a lot. You notice this if you try to memorize speeches from his plays. Sometimes it seems like it is nothing but “and.” It is used primarily to make the meter work in a line, without working too hard at it. See if it doesn’t start to annoy you now that I’ve pointed it out.

Still… Hooray for science!

Ever noticed how you don’t hear much about economic inequality? Sure, you’ll hear about poverty and how to employ more people. But when it comes to structural inequality, forget about it. And the reason is that it is the rich who determine what is discussed in the public square and they do not like to talk about inequality. Poverty? Jobs? These are issues that the rich can feel good about. A rich man can feel all noble and shit by ponying up a bit of cash for a homeless shelter. A rich woman can feel kindhearted about writing a check for a job training center. But inequality?! That implies maybe that their riches are not legitimate.

I would go father. I would say that the allure of libertarianism and Ayn Rand is that they provide the rich with armor against what they know deep down is true: they’re lucky. And just so you understand, I mean completely lucky. But just so you don’t think I’m just a bitter old man, let me explain how lucky I am. I was born smart. I was born in America. I was born to parents who were often in the middle class. Of course, I was born with other things that were not so helpful in making it in modern America: humility, introspection, and a sense of fair play. For me as with everyone, my experience in life is entirely dependent upon who I was born and where I was born. Everyone does what comes naturally, and no one should get a gold star for being particularly good at what they are particularly good at.

Given that I see the world this way, it is not surprising that I think that economic inequality is a very big deal. What’s more, Timothy Noah’s new book The Great Divergence is important reading. The book is data heavy. Noah spends a chapter each on various reasons why we have such an unequal economy. In the end, there are two main issues. The first is that the tax system rewards wealth—the more you make, the less you pay. In the meat of the book, he tends to downplay this issue, because he notes that even before we look at taxes, income inequality has risen sharply over the last 30 years. It is only in the final chapter that he admits that it is a big deal—especially the Social Security deduction cap at $106,800.

The primary cause of the rise of inequality in the United States, according to Noah is the demise of private sector unions. This comes as no shock. In my own experience, those who are unionized take it for granted and don’t fight to defend it. Those who are not unionized resent those in unions, even as they wish that they too were in a union. This goes back to something I read in The New Jim Crow, that slavery became racialized in the United States to keep poor whites and blacks from forming alliances. Thus, poor whites could feel good that at least they weren’t black (and therefore slaves). We see the same thing today over unions. The rich manage to get non-union poor to vote against unions to bring down the middle class union members. It doesn’t help the poor, it hurts the middle class, and it rewards the rich.

The best chapter in the book is the second to the last: “Why It Matters.” Here, Noah goes through all the arguments than conservatives make for why inequality doesn’t matter. The thing that has most amazed me over the past few years is the rise of this argument that inequality is good. Noah destroys this idea, writing:

It is only jerks who have no experience with the working lives of real people who can propose such rubbish as serious scholarship. People who have spent their whole lives toiling in the upper-middle class have no idea. Regardless of how capable and conscientious one is at a minimum wage job, he will always be treated as suspect—as someone who must be watched lest he steal or shirk. The fact that college professors are more likely to be lazy than any worker at Walmart hardly matters.

Did I mentioned that a son’s income is more correlated to his father’s than a son’s height is correlated with his father’s? That’s right: we’ve created a society where wealth is more heritable than biological attributes.

In the final chapter of The Great Divergence, Noah presents some policy recommendations. Unfortunately, even before presenting them he admits that they are not very likely to gain any traction anytime soon. In fact, he notes that in 2009-2010, with a Democratic congress and presidency, unions could not get the small change of card check to the Taft-Hartley law.

The Great Divergence is a really good, even important, book. It explains a lot about the world we now live in. It is also really depressing.

You can’t love an object you don’t really see. See America, and then we’ll talk.

We’re number one! We’re number one!

Just a quick note. I was looking at The Rolling Stone 100 Greatest Guitarists of All Time. Such exercises are silly, of course. For one thing: of all time? There is not a single classical guitarist on the list. There is no guitarist on the list from before 1930. But okay, I’ll play along. Certain things can be said even if there is great variety in type of music and style. Most of the people on the list were at least really good guitarists. But some things really stood out. In particular, George Harrison was listed at number 11. This is above at least 70 guitarists who are better than he was. He is right above Stevie Ray Vaughan. Can anyone seriously argue that Harrison was better than Vaughan in any way when it comes to playing the guitar? Frank Zappa makes the list down at number 22 when he was one of the most proficient rock guitarists ever. At least Duane Allman beat out Harrison at number 9, below many lesser (but great) guitarists. And Allman only beat Pete Townshend by one place. I like Townshend a lot, but he is not a great guitarist. Down at 71 is Robert Johnson, so clearly no thought is given to when an artist worked.

It is truly a pathetic excuse for rock journalism, even given the incredibly low expectations of the field.

I’m away visiting family so I won’t have much to say here. I did come upon this great cartoon over at Patheos, in a discussion of bleeding heart libertarians that is well worth reading.

Watch this video and see if you can’t managed just a little sympathy for Governor Yells-At-People:

I have almost no capacity to stay mad at someone who is not actively being a dick. So I could take Christie’s side in a second, if only he would stop being a dick. The problem is that he never does stop being a dick—at least, as long as he’s talking. He’s just impossible to like. Springsteen, on the other hand, is the kind of guy I’d love to hate. I certainly hate the way people (like Christie) deify him. But he’s impossible not to like. And he’s very smart, as can been seen by his avoidance the evil and petty Governor Yells-At-People.

Afterword

One of my favorite Springsteen songs:

Robert Reich has written a very interesting article for The Nation called Mitt Romney and the New Gilded Age. It discusses how it came to be that one of the two major political parties in the United States nominated a man for president who epitomizes everything that is wrong in our country. It was only 4 years ago that the economy imploded because of what Reich calls “casino capitalism”: the heads they win, tails we lose rules of the financial industry.

Reich doesn’t go into this in the article, but Romney proposes the exact same policies of George W. Bush. Even if we forget about the Crash of 2008, Bush’s policies have been refuted. This is not just true in terms of the facts: both of the Bush tax cuts were sold as stimulating the economy, but they did very little in this regard (we hardly needed this proof—supply side economics just doesn’t work). Perhaps more important, the people of the United States were unhappy with Bush long before the Crash.

After discussing many malefactors who are using their billions to destroy democracy, Reich puts his focus directly on Romney:

Again, I don’t think Reich goes far enough. He seems to imply that if Romney had owned a manufacturing giant, his claims to know how to create jobs would be more credible. But this is not the case. Business experience is useful in a lot of ways, but it absolutely does not help to create jobs in the economy as a whole. The Federal government has special tools that allow it to affect how hot or cold the economy runs: deficit spending the money supply. This stuff is totally different from what any business does.

I’m not putting down business experience. The truth is that being a governor of a state doesn’t prepare someone to manage the economy either. But a governor has a lot more transferable knowledge than a corporate CEO does. Not that this makes the CEO unqualified. This idea that CEOs know something special about creating jobs, however, is total nonsense.

Despite these caveats, Reich’s article is great. I recommend reading it.