Property Rights

Nobless ObligeA few years back, Romney explained why productivity increases, although painful, are good.

This is simple stuff. He gives a hypothetical: a country with 200 people in it. Half of them farm and half of them build houses. Someone invents the plow and suddenly, all the country’s food needs can be met with only 50 people. Now, 50 former farmers are out of work.

Romney explains that this is good because those 50 people can then produce something else that is good for the country:

To the 50 people who lose their jobs, it’s a very bad idea, and they will resist with great energy and passion the idea of allowing horses to draw plows because it will make their life far more uncertain, at best. Those of us who stand back a bit say, no no no, don’t you understand that by having these plows and releasing those 50 people that someone, one of them or someone else is going to come up with something else for them to do? Making chairs, making movies whatever that is going to make everyone better off. More productivity will make everybody wealthier and more successful.

This is true, of course. In fact, this is kind of like Economics for Preschoolers.

The problem I have with this example is that it wouldn’t work the way Romney claims. The invention would not cause half the people to be unemployed. At first, they would just grow more food than they needed. Eventually, everyone (Including the builders!) would work less. This greater leisure would lead to people building chairs, making movies, whatever.

The point is that there would be no disruption. In a truly free society, an unemployed farmer would just start working some fallow bit of land. In our society, he couldn’t because that fallow bit of land is owned by someone else. Maybe the farmer could make a deal with the owner and maybe he couldn’t. But that is our modern problem, not the problem of a true free country.

I’m not suggesting that we abolish land ownership. However, I am suggesting that for the right of private property, society should be able to demand something from land owners to ameliorate the disruptions caused to workers.

The problem I see in modern conservatism is that private property is seen as something natural. Most of these people live in a fantasy land where if there were no government the world would turn into a libertarian utopia instead of the dog-eat-dog, roving biker gang dystopia of Mel Gibson fame. The old conservative saying is, “Rights imply responsibilities.” Somehow, they just can’t see the second word in “property rights.”

Push Me Pull You Economics

Encouraging Business InvestmentA standard conservative belief is that we must lower taxes on the wealthy because they are Job Creators. I’ve written much about how this is nothing more than a myth. Put simply: businesses hire when their businesses have to because of their work requirements. This stuff is not rocket science, and anyone who was ever run any kind of business understands this.

Taxes as Subsidy

I was thinking about this question from a different perspective: could higher taxes lead to more hiring? Consider a small business owner. Let’s suppose it is an unmarried woman and she makes a net income from her business of $500,000 per year. Right now, the top tax bracket is 35% on income over $388,350.

The standard conservative calculation is that if this tax bracket went up to 40%, she would not hire anyone because it would cut into her earnings. At this new tax rate, she would be taking home $5,582.50 (5%) less than she would have taken home before.

But here’s the thing: that $5,582.50 could also be a subsidy. She hasn’t used any of those profits to hire employees in the past. She made $111,650 in that highest tax bracket. Before, the government was offering her a $39,077.50 (35%) subsidy to take a chance at expanding her business for greater future profits. Now, the government is offering her a $44,660 (40%) subsidy to take a chance at expanding her business. Maybe it wasn’t worth it before, but now it looks pretty good.

Let’s look at it the other way. Suppose the government says, “Let her keep all her income above $388,350!” Now the government is offering her no subsidy at all to hire new workers. She might as well just spend the money rather than invest in her business.

Hold On There, Fella

This is not the only economic force acting on our small business owner, of course. The higher the tax rate, the smaller the payoff for business investment. Our businesswoman may think, “Why should I invest in my business when the government will only take the future extra money away?” And this is no doubt true if the tax rate were high enough. A 99% top marginal tax rate would certainly do this. Maybe a 70% margin tax rate would as well. But it is pretty hard to argue that a 40% tax rate would stop people from investing in their businesses.

Not Stupid Policy

The point here is not that higher marginal taxes will only cause there to be more business investment. It is that there is economic forcing in both directions. Assuming that taxes only have a negative effect on investment is just stupid. What we need is something like the Laffer curve for this, to determine what tax rate would maximize investment. (I’m sure many economists have spent their whole careers doing this.) My feeling is that the maximal top marginal rate would be higher than it currently is.

There are also policy implications of this. One that comes immediately to my little brain is that future low tax rates in exchange for current business investment should be very effective at stimulating the economy. Of course, I wonder just how much we would want to stimulate business. This sounds like it might be a prescription for an overheated economy. (Not that Uncle Ben couldn’t handle that.)

O Brother, Where Art Thou?

O Brother, Where Art Thou?Last night, I watched O Brother, Where Art Thou? for the first time in many years.It is a perfect film, and likely the Coen Brothers’ best.

It is based upon The Odyssey, but the word is that the Coens have to this day never read it. This is not surprising, because O Brother follows the book in only the most vague way other than throwing in well known parts like the Cyclops. This is for the best. I’m not that fond of The Odyssey. To me it is unrelentingly negative and unless you really like Odysseus (I don’t) the fact that all of his crew die is a major bummer.

In O Brother, the Coen Brothers take this endless romantic struggle and turn it into a goofball comedy. The most striking change is of the Odysseus character: Ulysses Everett McGill. Whereas Odysseus only seems to be interested in getting home at times of pique, McGill is always focused on getting home and saving his marriage.

Despite moving the story from ancient Greece to Great Depression America, the film maintains the other worldly aspects of the book. The best part of this is having Satan constantly on the protagonists’ tails. This is so much better than in The Odyssey, where there is constant negotiations between the various gods. In O Brother there is no need for gods to cause turmoil, humans are good enough at that themselves. But like it or not, Death is always close behind us. “The law is a human institution.”

I find I have little to say about this movie. I could pick it apart, but as I said: it is a perfect film. Anything I could say is irrelevant, other than that it should be seen.

Afterword

The Coen Brothers claim that their main idea was to tell the story of The Odyssey in the Ma and Pa Kettle universe. When I was a kid, I hated those movies. But recently, I saw part of one on TV at my sister’s. It was funny as hell.

Romney Gets One Thing Right

60 MinutesOnce upon a time, 60 Minutes did actual journalism. Last night, they devoted their episode to interviews with President Obama and Mitt Romney. It wasn’t terrible. I thought that the Obama interview was the more aggressive of the two. But it was clear why this was: Romney isn’t up to a probing interview. I don’t think that Republicans realize just how much affirmative action they benefit from in the form of false equivalence, softball questions, and low expectation.

I thought that Steve Kroft asked some good questions of Obama. In particular, he went after the President on the mortgage refinance program that has be disappointing. What was not so great was Kroft’s dismissive attitude. His reaction shots seemed very disrespectful to me—like it was another Bill O’Reilly interview.

Although Scott Pelley’s interview of Mitt Romney went very easy on the candidate, Romney still came off badly. I thought the most telling exchange occurred when Romney explained that he was going to cut tax rates 20% across the board but somehow make these cuts revenue neutral by closing loopholes and deductions. He went on to say that there would be a net tax cut for the middle class. Pelley pushed on this point, although he never brought up the Tax Policy Center that showed that Romney’s plan could not work as he claims. Instead, Pelley asked what specific deductions Romney would end. Romney replied:

It’s very much consistent with my experience as a governor which is, if you want to work together with people across the aisle, you lay out your principles and your policy, you work together with them, but you don’t hand them a complete document and say, “Here, take this or leave it.”

This is a high misleading claim. As Jonathan Chait notes, “How about handing them a complete document and saying, ‘I am willing to negotiate’?” What I thought when he said this was, “What about the 20%?” Romney cannot be specific about which deductions he would end or reduce, but he is very specific about how much he would lower the tax rates. I’ve never seen anyone call him on this.

There was one part of interview where I thought Romney was right. And it isn’t new. If you push him hard enough, Romney will admit that he is a Keynesian. He understands that cutting government spending will hurt the economy. This is perhaps the most frustrating thing about Romney: he’s smarter than the candidate he plays on television.

Here Pelley asks Romney why shrinking the federal government on a large scale wouldn’t hurt the economy:

Well, the—the plan I have to—to go after the deficit and to shrink federal spending is metered out in a very careful way, such that we don’t have a huge drop off with an austerity program that puts people out of work in government. But instead, through attrition, over time, we scale back the number of federal workers so I’m—I’m very careful in the way I do this.

This is the correct answer! Ding ding ding! Romney wins a prize!

But there is a dark side to this. One of Romney’s big talking points is that the government can’t create jobs. Given that he understands that losing government jobs will hurt the economy, he must know that adding government jobs will help the economy. So even when Romney provides an honest and well thought out economic policy idea, it only shows how willfully ridiculous the rest of his policy ideas are.

The 60 Minutes interviews contained no new information. I suppose they are good to have because most people haven’t been following the campaign over the last three years. But the episode allowed Romney especially to give talking points that were never countered. The old 60 Minutes that I remember would have cut away after Romney stonewalled on the deductions in his tax plan, “However, the Tax Policy Center has shown that there are not enough deductions to cut that would leave the taxes on the rich unchanged. What’s more, this study found that far from lower taxes on the middle class, Romney’s plan would raise them.”

Those were the days.

Update (24 September 2012 9:11 am)

There were several other things that were repellent about Romney in this interview. One was that he claimed that the uninsured do have healthcare—all they have to do is wait for a heart attack and then go to the emergency room. What were you thinking, Mitt?! You left your top hat and monocle at home! He also noted that he should only pay a 15% tax rate because his money has already been taxed at the corporate level. This is wrong; I hope to write about it later.

Update (24 September 2012 11:10 pm)

In Mitt Romney got one thing right, then President Obama got one thing very wrong: Obama’s Plan on 60 Minutes.

Clint Eastwood Talks to More Inanimate Objects

I don’t think people appreciate just how much of a Luddite I am. I am a pretty good programmer—c++, php, all that—but I have little idea what things like Twitter are all about. I do, however, know that tweets are occasionally hilarious. Here is a screen shot of one by Bill Maher yesterday that I would re-tweet if I knew what that meant:

<%image(20120924-billmahertweet.jpg|450|204|Bill Maher Tweet - 22 September 2012)%>