Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

[FlagDUDE08]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

Just go move to Somalia already. You want a lack of government, you can have it there. You want fingers-in-your-ears ignorance, look in the mirror. Otherwise, let me know when you realize that there's a reason for almost every law and regulation, and until you can show the private sector won't fark it up the same way again, I'm fine with the govt preventing those particular forms of free enterprise.

I'm sure he'll do it as soon as you move to North Korea. You want nothing but government, you can have it there. Otherwise, let us know when you realize that there's a reason for free enterprise, and until you can show a government-run system won't fark it up the same way again, I'm fine with the allowance of free enterprise.

 

[unofan]

I'm sure he'll do it as soon as you move to North Korea. You want nothing but government, you can have it there. Otherwise, let us know when you realize that there's a reason for free enterprise, and until you can show a government-run system won't fark it up the same way again, I'm fine with the allowance of free enterprise.

Our system gives private companies the benefit of the doubt. So fark them if they fark up so much that 220 congressmen and 60 senators agree to a rule to curb their excesses.

 

[FreshFish]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

Hoping to keep political nonsense from infecting this thread and so that we can remain more in theory and empirical data. There alrady are other political threads for people to rant in to their hearts' content.

Anyway, let's go to the original source:

I scanned through my copy of Keynes' General Theory last night. Here's what most neo-Keynesians seem to miss: Keynes posited that there are certain situations in which "aggregate demand" cannot be stimulated by traditional fiscal or monetary means, or as he put it, "you cannot push on a string." In those limited circumstances, government can provide a temporary boost to aggregate demand by borrowing money and spending it on public works projects, so that the subsequent economic growth that was jump-started by that spending can then provide enough incremental revenue to pay off the borrowed money plus interest.

One of the very first things to note here is the implicit assumption that the government is not borrowing money merely to meet payroll. We don't have that situation now.

The second thing to note is that his focus is not on the spending nor the public works as an end in itself. Instead, the spending is (a) temporary, and (b) the purpose is to stimulate economic growth.

It appears that both of those important corollary assumptions have been overlooked in the public policy debates.

 

[FreshFish]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

A subsidy for doing something and a tax for not doing something are the exact same things.

Oh, really? in one situation some people receive a check and in the other situation different people are writing a check?

This could be interesting: how is one person receiving a check "the exact same thing" as a different person writing a check? Please explain, the CPAs of the world are awaiting your answer with bated breath as this would completely overturn everything they were taught!


If the latter were writing the check directly to the former, I could see it; however, that is not the situation you are describing.

 

[FlagDUDE08]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

Hoping to keep political nonsense from infecting this thread and so that we can remain more in theory and empirical data. There alrady are other political threads for people to rant in to their hearts' content.

Anyway, let's go to the original source:

I scanned through my copy of Keynes' General Theory last night. Here's what most neo-Keynesians seem to miss: Keynes posited that there are certain situations in which "aggregate demand" cannot be stimulated by traditional fiscal or monetary means, or as he put it, "you cannot push on a string." In those limited circumstances, government can provide a temporary boost to aggregate demand by borrowing money and spending it on public works projects, so that the subsequent economic growth that was jump-started by that spending can then provide enough incremental revenue to pay off the borrowed money plus interest.

One of the very first things to note here is the implicit assumption that the government is not borrowing money merely to meet payroll. We don't have that situation now.

The second thing to note is that his focus is not on the spending nor the public works as an end in itself. Instead, the spending is (a) temporary, and (b) the purpose is to stimulate economic growth.

It appears that both of those important corollary assumptions have been overlooked in the public policy debates.

One thing I never liked about Keynes' theory is that it doesn't explain the stagflation of the 70's. Also, does it explain the effects on the basis that the amount of money supply is able to change?

 

[FreshFish]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

You want a lack of government[?]

Of course not, now you are just being silly. You again completely sidestepped and dodged and changed the subject.

Even given the level of government "services" we have, there is no reason given today's technology that it should take one out of every four people working to provide it.

I said that, relative to the services provided to the public, government at all levels is overstaffed compared to what actually is needed to provide those services. You ignored that completely and twisted it into something unrecognizable.

Is that what they teach you in law school when you are losing on the facts? Distract and obfuscate?

I'll be very interested to hear your reasoning as to why we "need" 12 layers of management, for example. Do you really truly believe that we cannot deliver exactly the same services with 10 layers of management??

 

[FlagDUDE08]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

Oh, really? in one situation some people receive a check and in the other situation different people are writing a check?

This could be interesting: how is one person receiving a check "the exact same thing" as a different person writing a check? Please explain, the CPAs of the world are awaiting your answer with bated breath as this would completely overturn everything they were taught!


If the latter were writing the check directly to the former, I could see it; however, that is not the situation you are describing.

Actually, unofan does have a point. It's the government's effective method of encouraging or discouraging behaviour. There are two ways to do it: Either you tax at the point of sale (sales/use tax), or since you can't give a benefit at the point of sale (given the federal government does not impose a sales tax at this time), you tax everyone via another means you have (say, income) and then give credit at yearly tax payment time for a tax that the govenrment believed you paid in error, although it still costs you the opportunity cost of interest you could have made on that tax. Look at the entire situation.

 

[unofan]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

Oh, really? in one situation some people receive a check and in the other situation different people are writing a check?

This could be interesting: how is one person receiving a check "the exact same thing" as a different person writing a check? Please explain, the CPAs of the world are awaiting your answer with bated breath as this would completely overturn everything they were taught!


If the latter were writing the check directly to the former, I could see it; however, that is not the situation you are describing.

Either way the family with the child has an extra $X dollars that I don't have as a childless household. Presuming all else is equal, we'd otherwise pay the same amount in taxes. Whether I pay $X more because it's viewed as a penalty, or they pay $X less because they get the credit, in the end, they wind up with $X more than me come tax time.

Whether you view it as having a high base tax rate with credits/subsidies for doing something, or a lower base tax rate with penalties/mandates for not doing something, the ultimate outcome is the same.

 

[FreshFish]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

Also, does it explain the effects on the basis that the amount of money supply is able to change?

IIRC, Keynes did not pay much attention to the absolute level of the money supply; however, the velocity of money is a crucial component of his general theory. I can remember the equation's implications but I can't quite recall the exact formulation and I didn't find it after about 180 seconds of looking. Something like the price level times velocity of money = aggregate demand times some other factor though I may well have something flip-flopped.

Before Keynes, most economists had believed that an economy at equilibrium would "automatically" also be at the level that would support full employment; and it was Keynes' breakthrough that an economy could reach an equilibrium state below a full employment level. He also had a crucial insight that people's expectations about the future was an important determinant of economic behavior; before him it generally was an implicit assumption that people's current economic status was a primary driver of behavioral choices.

One thing very few economists account for in their theories and models is that people learn from experience. Many times, an economist's prescription works, as long as people don't know what the government is trying to accomplish. Once people learn, then the same prescription very well might not work a second time.

 

[FreshFish]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

Whether you view it as having a high base tax rate with credits/subsidies for doing something, or a lower base tax rate with penalties/mandates for not doing something, the ultimate outcome is the same.

Nobel Prize winner Daniel Kahneman would fervently disagree, and I trust his decades of empirical research into human behavior far more than I would accept your unsupported opinion.

Do you have any data to support the statement of yours that I quoted? because I have a few books that not only say the opposite, they also provide evidence to support why they say so.

The classic Kahneman finding goes something like this:

"We have a risky new procedure in which 95% of the people will be saved."

compared to "We have a risky new procedure in which 5% of the people will be killed."

While logically you might try to argue that the two statements are equivalent, in a very important practical way they are very different: far more people will find the first statement acceptable than the second, and when it comes to how people behave, one formulation will drive vastly different outcomes than the other.

 

[joecct]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

I think they'd couch it as a 5% mortality rate.

But then again, the human race has a 100% mortality rate.

 

[unofan]

Nobel Prize winner Daniel Kahneman would fervently disagree, and I trust his decades of empirical research into human behavior far more than I would accept your unsupported opinion.

Do you have any data to support the statement of yours that I quoted? because I have a few books that not only say the opposite, they also provide evidence to support why they say so.

The classic Kahneman finding goes something like this:

"We have a risky new procedure in which 95% of the people will be saved."

compared to "We have a risky new procedure in which 5% of the people will be killed."

While logically you might try to argue that the two statements are equivalent, in a very important practical way they are very different: far more people will find the first statement acceptable than the second, and when it comes to how people behave, one formulation will drive vastly different outcomes than the other.

How does psychology matter when we're talking about taxes, something you have to pay no matter how much you despise them?

Though I suppose the amount of *****ing on this thread is some evidence. Let me guess, if the government lowered everyone's standard deduction by $400 but gave people with insurance a $400 tax credit rather than simply charging the $400 as a penalty for not having insurance, you'd be whining less?

 

[FlagDUDE08]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

How does psychology matter when we're talking about taxes, something you have to pay no matter how much you despise them?

Though I suppose the amount of *****ing on this thread is some evidence. Let me guess, if the government lowered everyone's standard deduction by $400 but gave people with insurance a $400 tax credit rather than simply charging the $400 as a penalty for not having insurance, you'd be whining less?

Actually, that brings up a good point... do you think that they will put the insurance credit as part of itemized deductions? I wouldn't be shocked if they did something cheap like that...

 

[joecct]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

How does psychology matter when we're talking about taxes, something you have to pay no matter how much you despise them?

Though I suppose the amount of *****ing on this thread is some evidence. Let me guess, if the government lowered everyone's standard deduction by $400 but gave people with insurance a $400 tax credit rather than simply charging the $400 as a penalty for not having insurance, you'd be whining less?

That would be a net loss for in revenue for Uncle Sam - not something to do in this day and age.

Anything done should try to be revenue neutral with an expanding private economy adding to the government coffers.

 

[FreshFish]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

Whatever got it started, this little review of Keynes General Theory helps explain why the "stimulus" of 2009 failed to meet its expressed objectives.

Deep background:


The problem at issue was full employment, or the lack thereof.

The classical economic theory said that prices (including the price of labor) adjust upward or downward until they reach a "market-clearing", or "equilibrium" level.

Keynes noted that wages (the price of labor) are "sticky downward:" that is, wages don't adjust downward when there is excess capacity in the labor market. That was in the 1930s, today there is considerably more "stickiness" in the form of a minimum wage and unemployment insurance benefits (although our review of Keynes provides some suggestions on how those programs might be structured more effectively).

In order to increase employment with wages that won't go down, one must increase "aggregate demand."

One of the most effective ways to increase aggregate demand is to increase the velocity of money; which can be accomplished by a temporary government public works program. Implicit in this analysis was that government was not already borrowing money to meet payroll, and that the spending would immediately start circulating money in the economy in the form of purchases and wages to private-sector workers. Any so-called "multiplier" would be proportional to how much the velocity of money increased.

The essential insight is that the so-called "multiplier" is crucially dependent upon how much the spending causes the velocity of money to increase! In other words, the same amount of spending could have a vastly different multiplier, depending on how the details of that spending affect the velocity of money. How quickly, and in what manner, the spending reached the market made a very big difference.

The 2009 stimulus saw way too much money go to state and municipal governments instead of private sector workers, so that the effect on velocity of money was more muted; in addition, the spending just took too long to get to market, and was too dispersed and unfocused once it reached the market in piecemeal fashion, to have much effect on velocity. Finally, people adjusted their expectations, changing their behavior from the baseline that the central planners thought they'd follow, and used much of the stimulus spending either to reduce debt or to increase savings, which again muted the anticipated effect on the velocity of money as well.

To be extremely clear: the multiplier, in retrospect, was less than 1 for the 2009 stimulus, because it is not the incremental increase in government spending that matters, what matters is how the incremental increase in government spending changes the velocity of money. The money was spent in the wrong way on the wrong stuff to work as advertised.

 

[FreshFish]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

Two fascinating implications from Keynes' work on the minimum wage and on unemployment insurance.


Please note that these results are not necessarily what I personally believe or advocate; they are merely my readings of Keynes' work.


Recall that the goal under discussion was the effect of these programs on reaching full employment, and how both of them are drags on the process, by making it harder for wages to reach a "market-clearing" level.

For the minimum wage:
> a two-tier minimum wage might make more sense if you are going to have one at all: an entry-level, or "probationary" wage for people just entering the labor force or just getting their first job, and an "estabished worker" wage or whatever for people who are worth keeping on the payroll after their probationary period expires.
> the minimum wage should NEVER be indexed for inflation: inflation is the only process that allows wages to reach a market-clearing level; if you index the minimum wage for inflation you make it structurally impossible for wages ever to reach a market-clearing level and consequently you assure that full employment will always and forever be out of reach.

for unemployment insurance:
> unemployment insurance benefits should grade out over time and be for a relatively shorter rather than longer time period
> rather than 100% cash payments, a certain portion of unemployment insurance benefits "should" be tuition vouchers or vouchers for job retraining programs.

Remember, either wages "need to" go down relative to the price level for employment to increase, or people's productivity has to increase so that their labor is worth a higher price. Since nominal wages do not go down, the price level has to go up to reach full employment.

 

[unofan]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

That would be a net loss for in revenue for Uncle Sam.

No, it wouldn't. (though I probably should have said individual exemption or something else rather than standard deduction, so as to not exclude those who itemize)

An individual without insurance currently pays X in taxes. All else being equal, in 2014 they'll pay X + Y (the penalty for not abiding by the mandate). An individual with insurance will continue to pay X in 2014.

Alternatively, the gov't could say ok, starting in 2014, everyone's taxes are going up by Y through some mechanism such as lowering the personal exemption. But if you have insurance, you'll get a tax credit equal to Y. The person without insurance still pays X+Y, and the person with insurance still pays X. There is no practical difference.

 

[FlagDUDE08]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

No, it wouldn't. (though I probably should have said individual exemption or something else rather than standard deduction, so as to not exclude those who itemize)

An individual without insurance currently pays X in taxes. All else being equal, in 2014 they'll pay X + Y (the penalty for not abiding by the mandate). An individual with insurance will continue to pay X in 2014.

Alternatively, the gov't could say ok, starting in 2014, everyone's taxes are going up by Y through some mechanism such as lowering the personal exemption. But if you have insurance, you'll get a tax credit equal to Y. The person without insurance still pays X+Y, and the person with insurance still pays X. There is no practical difference.

Actually, there is a practical difference. It's called interest. Granted, a clever citizen will adjust withholdings so that he/she owes up until just below when penalties start to take effect, so in that case it wouldn't matter.

Actually, in speaking of interest, there is actually a hidden tax on people making over $150,000 a year, with exception to farmers and fishermen. More of an opportunity cost tax, but a tax none the less. If you look closely, you are actually required to withhold 110% of your previous year's tax due. That's right, a 0% interest loan. It doesn't matter if you are issued a refund, either; you are still required to pay the penalty.

If only the government were to abide by those rules when it comes to spending...

 

[FlagDUDE08]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

So, Yahoo just made a $30M acquisition. Oh, did I mention that the person receiving the money is a teenager? http://www.forbes.com/sites/peterco...r-gives-17-year-old-brit-a-30-million-payday/

 

[St. Clown]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

So, Yahoo just made a $30M acquisition. Oh, did I mention that the person receiving the money is a teenager? http://www.forbes.com/sites/peterco...r-gives-17-year-old-brit-a-30-million-payday/

I read that on CNN. That kid has the potential for a very bright future in store.