Asymptosis

I just think it’s kind of unnecessary for me to comment on this…

After weeks of demanding President Obama “produce the birth certificate” so it can be “over [and] done with,” right-wing media figures have begun attacking Obama for releasing his long-form birth certificate, claiming it was done as a “distraction” and complaining it was done to “personally put down his detractors.”

Right-Wing Media Attack Obama For Releasing His Long-Form Birth Certificate Like They Demanded | Media Matters for America.

 

I think that was Krugman’s line; can’t remember who I stole it from.

But in any case he’s got the facts on the ground posted today:

 

Raising the Medicare Age – NYTimes.com.

I’ve been just as frustrated as other progressives with the Obama administration’s lack of … progressivity. And I’ve been befuddled by why it hasn’t happened. Why didn’t he take the lead on redesigning our health-insurance system, for instance, instead taking the politically bruising months-long course of delegating its drafting to Congress?

Here’s a possiblity.

Obama — constitutional law professor that he is — is at his very core a constitutional conservative. He believes that laws should be created by Congress, not the executive branch. And unlike so-called conservatives on the right, he’s ready to live by those convictions, sacrificing both short term policy goals and political considerations on the altar of those beliefs.

I think it’s quite possible that when the biographies are written, when the historians get a chance to go through the presidential papers and interview key members of the administration, that constitutional conservatism will emerge as at least one of Obama’s defining characteristics as president.

But I’m not sure. What do you think?

Cross-posted at Angry Bear.

Right-wing economists love to claim that government spending “crowds out” private spending, especially investment spending on fixed assets. It’s probably true at some level and in some situations.

But if it was true for postwar America, you’d expect to see some evidence in the historical data, right?

Not so much:

Note: Government includes all levels — federal, state, and local.

The investment share of government, ex-defense, fell by 29% from the 60s to the 80s, while the share devoted to business increased 18% (28% from the 50s to the 80s) — the very period when the blossoming New Deal programs and Johnson’s Great Society were supposedly creating Leviathan, embodied.

Those changes in share percentages don’t really put across the magnitude of the change, though. Business investment started at a much higher level, so the absolute increase in business investment utterly dwarfs all the other changes.

Curiously (given the right-wing narrative) the business share flattened out once we started feeling the manifestly salutary effects of the Reaganomics world view. It actually declined slightly under Dubya and six years of unfettered Republican control. Go figure.

Defense investment has plummeted since the 50s (and — naturally — the 40s) — a 31% decline in its share from the 60s to the 80s, 58% from the 50s to the 80s, and 78% from the 50s to the 00s.

(Note: “domestic” assets are those located in the U.S. — except that government assets include U.S. military installations, embassies, and consulates worldwide. So this rapid decline may represent a worldwide construction binge in the 50s and 60s which was largely completed by the 70s. Defense investment generally includes much higher proportions of spending on structures — this was especially true in the 50s and 60s — compared to business investment, which devotes much, and increasingly, more to equipment and software.)

Wondering what caused Tyler Cowen’s Great Stagnation (the slowdown in economic growth since the mid-70s)? Here’s what looks like a smoking gun: Government investment spending as a percent of GDP fell off a cliff from the 50s/60s to the 80s – a 42% drop in sixteen years from ’68 to ’84, down 48% from ’58 to ’84. It’s been floating around that low level for the last 26 years.

Oh and for those who are curious, government consumption spending as a percent of GDP has been flat since the mid-70s.

The crowding-out theory of postwar America is in fact anachronistic by about six decades. When Simon Kuznets (who in the early thirties created the system of national accounts now used by every country in the world) published Capital in the American Economy in 1961, reviewing trends from 1869 to 1955, he cited the proportional growth of government investment as the dominant trend in capital formation over the decades he was examining.

The postwar trend has been in exactly the opposite direction.

I’m just sayin’: stopped clocks are wrong most of the time.

Reading the many web comments on my flat tax proposal, I find that many didn’t actually read it (I do go on…), or understand it.

So here’s the short version. Not so short, as it turns out, but I hope easier to grasp quickly.

Unlike the many commenters who failed to do so, please at least skim through before commenting, here or elsewhere. For supporting data and graphics, and sources, see the original post.

The proposal:

1. Tax financial assets of domestic entities, personal and corporate, at an annual rate of 1%, generating revenues somewhere north of $550 billion a year.

2. Eradicate corporate, dividend, and capital-gains taxes, and reduce income taxes by 22–51%.

The implications, and responses to objections:

• Because there would be no taxes on real, productive assets (structures, equipment, software, and the less-measurable assets derived from training, R&D, organization building, etc.) or profits, and personal income would be taxed at a much lower rate, the Financial Assets Tax (FAT tax) would encourage investment spending on real assets (and consumption) instead of hoarding of money in financial assets — living off the economically useless (at least in the long term) “rents” from those holdings.

• In other words, the FAT would discourage saving (storing money in financial assets) in favor of investment spending (and consumption).

• We currently tax worldwide income (at least of natural humans). There’s no reason we can’t tax worldwide holdings; it’s actually much easier. It would end the tax-avoidance scheme of corporations indefinitely “deferring” taxes on un-repatriated offshore income.

• People and companies will still seek to engage in tax fraud by concealing their international holdings, just as they now attempt to conceal their international incomes. Nothing new there, except that income flows are easier to hide than holdings.

• Since financial holdings would be taxed no matter where they are stored, Americans would have incentive (convenience, security, etc.) to store them domestically. (Worth actually reading for those who haven’t: Adam Smith’s “invisible hand” passage.)

• Since corporate profits would not be taxed, multinational corporations would have incentive to repatriate their worldwide profits — something that is actively discouraged by the current tax regime. Constraints on inbound money flows (“foreign” direct investment) would thus be reduced.

• It doesn’t much matter to our country where financial assets reside. It very much matters where real assets reside — they are what constitute our national wealth: our means of producing (and consuming) in the future.

• If there are attractive and lucrative real-investment opportunities in America, money (so-called financial “capital”) will flow into those investments. It doesn’t matter where the money is currently stored.

• Even acknowledging some “friction” in international money flows (though it’s darned hard to discern that friction), businesses consistently tell us that shortage of financing is the very last thing on their list of business constraints. Fact: The supply of credit to the real economy far exceeds the demand. The supply of liquidity is truly oceanic, and over recent decades that supply has expanded at a far faster pace than the demand, with all of the excess going to the financial sector.

• Havens for financial assets like the Bahamas and Lichtenstein, despite their massive holdings of financial assets, do not become economic powerhouses. This is because simply harboring financial assets does not result in formation of real assets.

• The American financial sector would shrink as people moved money to real assets. This would shift some income from real, productive activities in the financial sector (advice, intermediation, bookkeeping, etc.) to other, arguably more productive, activities in the real sector.

• Credit-issuance to the financial sector would decline because financial-sector returns would decline, reducing the systemic “meltdown” risks associated with excessive quantities of debt, especially financial-sector debt.

• Fluctuations in a smaller financial assets market — the sole or at least primary source of so-called “business cycles” — would result in smaller disruptions to the real economy.

• A smaller financial sector, and and an annual tax on private wealth, would over time reduce the concentrations of wealth that result in government capture.

• A smaller financial sector would have less blackmail leverage to demand bailouts when it screws up. Moral hazard and all that.

• Lower returns on financial assets would decrease the incentives for brilliant people to earn their livings from “rent-seeking” in the financial sector, better allocating those human resources to productive, real-sector activities.

• Reducing or eliminating taxes on income and profits would remove or reduce major economic distortions/mis-incentives — discouraging work and entrepreneurship.

• Taxing financial wealth would introduce very little economic distortion, because there is no substitute for wealth, so the demand for wealth is largely inelastic. (Unlike the demand for employment, which is quite elastic because there is an excellent substitute: leisure.)

• Taxing financial assets would to some extent correct for a distortion inherent to the artificial nature of the financial system: real assets decay while financial assets do not, so real assets are at a great disadvantage when competing for “investment.”

• A financial assets tax would be very progressive, because the distribution of financial assets is very regressive. This would help make the overall tax structure (fed, state, local combined) actually progressive, which it currently is not above about $60K or $80K in annual income.

• The wider distribution of wealth and income resulting from a Financial Assets Tax would better harness the “wisdom of the crowds,” cycling more money through consumption purchases to producers who deliver things that people actually want. (Rather than relying on omniscient asset allocation by a small cadre of suppliers and arbitragers.)

• The overall U.S. tax regime would be much more equitable — fairer.

I should add one last thing: we could achieve much the same effect through slightly (1%) higher inflation — making financial assets less valuable and real assets more valuable. But being something of a constitutional conservative like Obama, I think that ideally such a move should be effected by legislative intent, rather than the machinations of unelected technocrats at the Fed. Also — I won’t go through all the technical mechanics here — I think the taxing approach would result in less economic distortion.

Barry Ritholz links to Kathryn Schulz’s TED talk on Being Wrong (I wrote about her book here), and comments,

I dont know about anyone else, but I am wrong all the time.

I expect to be wrong.

Which led me to clear up some of thinking that I’ve been doing since my last post on the subject. Here’s the comment I left on Barry’s blog, with some editing:

I of course expect to be wrong about particular things. I think we all do. But that’s future tense. “Some of my current and future predictions will turn out to be incorrect.” Well, yeah. Not really so interesting.

What is interesting is the human propensity for present-tense denial of even obvious reality, and the extraordinary lengths and contortions to which we’ll go to avoid admitting that we’re wrong.

The big aha insight for me in Schultz’s book was this, which she skips by, doesn’t really put across, in her talk:

There is no such thing as the real-time experience of being wrong. Present tense. As soon as you realize you’re wrong, you’re not anymore.

She just hints at this glancingly in the talk, when she says that being wrong feels like … being right. Nice line, that.

The rest of her book left me dissatisfied, though (and even more so her talk), because it didn’t answer the fundamental question: why does it feel so bad to discover that we’re wrong? Why did we evolve to be like that? Wouldn’t it be more evolutionarily fit to embrace and enjoy the discovery of wrongness, for purposes of self-correction and accurate perception of reality? Wouldn’t people with that propensity have more grandchildren?

I’m kind of astounded that after five years of thinking about these questions, she never seems to have asked, much less answered, that one. She says we don’t like discovering that we’re wrong because it feels bad. But she never discusses why it feels bad.

The best (possible) answer I’ve come across is via Jonah Lehrer’s How We Decide.

Short story, it’s how the learning mechanism works. We’ve evolved so that if we are right in a prediction, we get a dopamine hit of pleasure. If we’re wrong, we don’t get our fix, and that feels really bad. (This helps explain why humans’ loss-aversion exceeds our gain-seeking.) It’s pretty straightforward behaviorism, embedded in a fascinatingly complex set of constructs.

So the the learning mechanism, ironically, makes us not want to discover that we’re wrong, because it feels bad.

I can only figure that the fitness benefits of the learning mechanism outweigh the unfitness of reality denial, and that evolution couldn’t “figure out” any other, less “expensive” way to do learning.

 

 

 

abacaxigod.jpg 1024×683.

Nate Silver: Gay Marriage Opponents Now in Minority – NYTimes.com.

Via: Medical Billing And Coding

 

 

HT: @felixsalmon