tag:blogger.com,1999:blog-2499715909956774229.post6712944450827011564..comments2024-03-09T02:22:57.289-08:00Comments on Stephen Williamson: New Monetarist Economics: Inequality and TaxationStephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comBlogger51125tag:blogger.com,1999:blog-2499715909956774229.post-48767770677627125542014-09-22T13:16:01.959-07:002014-09-22T13:16:01.959-07:00Yeah their assumptions are much worse than yours:
...Yeah their assumptions are much worse than yours:<br />All consumers and firms are identical in society<br />Everyone is a rational, self-interested person only in it for the money<br />Only Ed Prescott, Robert Lucas, etc are economists worth listening to<br /><br />Have you ever taken a brief pause to consider why the Nordic countries are doing so much better? Or perhaps why Canada is doing so much better than the US? Or maybe why economists such as Joseph Stiglitz and Paul Krugman won Nobel Prizes? Or taken a look at statistics and thought about why real wages have been stagnating since the 80s or are simple mathematical models you manipulate into producing the results you want with many unrealistic assumptions the only thing that matters?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-15077725724333722832012-01-16T22:04:50.802-08:002012-01-16T22:04:50.802-08:00"They're not hoarding real money balances..."They're not hoarding real money balances, so it must be going into investment. "<br /><br />Correct, they will typically use interest earning forms of savings rather than hoard cash. If they can't do that, that means less money for others' mortgages and credit cards. This is not a concern because the economy is not currently constrained by a lack of money to borrow or invest; in fact we've gotten into trouble because we're scraping the bottom of the barrel for ways to invest that money.Eric Lhttps://www.blogger.com/profile/17688525347746547529noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-88020256348713085042012-01-05T06:44:56.916-08:002012-01-05T06:44:56.916-08:00Ya it's right but i will not say so much becau...Ya it's right but i will not say so much because here already are so much scholars to discuss .But inequality and taxation are not <a href="http://www.mathcaptain.com/number-sense/ratios.html" rel="nofollow">simplifying ratios</a> of financial crisis even .We must think about this very deeply .Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-78132666518833328822011-12-28T08:11:55.344-08:002011-12-28T08:11:55.344-08:00Cool blog and the time spent responding is even co...Cool blog and the time spent responding is even cooler. Why, though, the use of absolutes/false dichotomies to diss things (e.g. "But the distortion has to show up somewhere. It's in labor supply. I can choose not to work, and not get taxed, or I can work and consume and get taxed.")? <br /><br />Is constantly using the word "model", serious or otherwise, another rhetorical devise to diss alternative views/borrow some pseudo-science credibility for what remains a "social science"? <br /><br />And are assertions like "Given mobility within the income distribution, we all care, for selfish reasons, about how the rich are treated, as we all could be rich some day, or our descendants could be rich" no a wee bit of a giveaway as to the author's views of society when trends in actual mobility rates are taken into account (and as such hard to reconcile with the aforementioned "model" chat)?<br /><br />Personally, I've no idea why positional goods don't get hit with a marginally higher tax rate.Primula Monkeyhttps://www.blogger.com/profile/09289100326536298640noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-11166136307199899292011-12-19T08:11:01.074-08:002011-12-19T08:11:01.074-08:00"The point of raising taxes on the rich in ou..."The point of raising taxes on the rich in our current economic situation is that it is taxing the money least likely to be spent, and it may be the one thing we can do in this economy to improve the fiscal situation without costing jobs."<br /><br />This comment is borderline retarded. What, pray tell, are they going to do with the income they "don't spend"? They're not hoarding real money balances, so it must be going into investment. Schmuck.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-48042156660023704982011-12-18T02:36:28.239-08:002011-12-18T02:36:28.239-08:001. How many people are really going to choose une...1. How many people are really going to choose unemployment over making a quarter of a million a year?<br /><br />2 and 3. The thing is business expenses can be deducted from your income, so if you're taxed at a high rate a large business risk will considerably reduce your taxes. So the upside of the risk is smaller as a result of the taxes, but so is the downside.<br /><br />4. Most engineers do not make enough to fall in the top tax bracket.<br /><br /><br />The point of raising taxes on the rich in our current economic situation is that it is taxing the money least likely to be spent, and it may be the one thing we can do in this economy to improve the fiscal situation <a href="http://economicreset.blogspot.com/2011/12/why-raising-taxes-on-rich-wont-cost.html" rel="nofollow">without costing jobs</a>.Eric Lnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-24399407005779409312011-12-15T06:51:22.456-08:002011-12-15T06:51:22.456-08:00Correct.Correct.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-50121535398920646302011-12-14T19:09:33.326-08:002011-12-14T19:09:33.326-08:00Taxing consumption doesn't increase saving. No...Taxing consumption doesn't increase saving. Not taxing saved income does.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-86082331269061474092011-12-14T06:37:47.025-08:002011-12-14T06:37:47.025-08:00Ah, it's the Chinese you don't like. I see...Ah, it's the Chinese you don't like. I see. Maybe you need some "communication skills and cultural awareness" about the world and how it works.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-43573666899174041682011-12-13T18:08:51.422-08:002011-12-13T18:08:51.422-08:00"If a lot of immigrants ... look the same as ..."If a lot of immigrants ... look the same as the US labor force in terms of skills,.. it should not change wages at all. ...You can't at the same time say that cheap low-skilled Mexican labor is reducing wages, and that cheap high-skilled Canadian labor is reducing wages."<br /><br />I think I can say that, if you let me replace "Canadian" with "Chinese" in the above statement. In that case the immigrant labor force does not look the same as the US labor force in terms of critical language and social/cultural skills, <br /><br />Imagine that you and I and 1000 guys like us emigrate to a small Chinese city. We can do menial labor, or do high-skill technical work in economics or chemistry in our pidgin Chinese. We can't however, be good salesmen, contractors, lawyers, middle managers, CEOs or other jobs requiring strong cultural awareness and communication skills. We will depress wages in the menial and technical fields, but the only affect we'll have on the salesmen and MBA's is to put money in their pockets by providing cheaper labor. <br /><br />P.S. The distribution of new faculty by nationality is very interesting - looks like your department is now mostly foreign-born, though mostly US-educated. Looks like this trend will continue, since only 8 or so of the 94 grad students in your department seem to be native-born.jeffb53https://www.blogger.com/profile/06055456224205941071noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-89860191612458882132011-12-13T15:42:50.409-08:002011-12-13T15:42:50.409-08:00How can a consumption tax increase saving? As you ...How can a consumption tax increase saving? As you point out, the saving is deferred consumption. If I consume today, I pay a tax today. If I save and consume in the future, I pay the tax tomorrow. Thus (depending on how you discount, and life cycle issues), it looks like a wash in terms of how I allocate consumption over time. But the distortion has to show up somewhere. It's in labor supply. I can choose not to work, and not get taxed, or I can work and consume and get taxed.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-23669634650230602282011-12-13T15:00:42.901-08:002011-12-13T15:00:42.901-08:00Equality has many dimensions, as David Brooks rece...Equality has many dimensions, as David Brooks recently adduced. Increased consumption equality may be a good thing, and certainly squeezes PCT into the current debate, but it's by no means the only reason for PCT. Consumption equality is not at all the same thing as income inequality, at least not at a given point in time. In fact, PCT may have the effect of increasing the latter due to incentive effects.<br /><br />It's those incentives that attract me to PCT. Taxing income on average reduces work incentives without affecting consumption incentives. Taxing consumption has the opposite effect, increasing work incentives and by increasing costs, reducing consumption. Doing so on a progressive basis matches the likely ability of the most productive to increase their output due to their predilection for living well. Generally saved income is invested, which facilitates the increased output resulting from the increased effort.<br /><br />Franks' PCT is not a VAT, precisely in that rates vary as a function of total consumption. It can be as regressive (flat) or progressive as desired. Tax rates for yacht buyers could exceed 100% (of the yacht price) if we chose. Such progressivity might discourage purchase of luxury goods, but we call them luxuries because we can do without them...<br /><br />Point-of-sale collection could be seen as a form of withholding, with the added benefit of taxing the purchase of those who are not under US income tax jurisdiction. Alternatively, total administration costs would be reduced if we dumped point-of-sale and used payroll withholding as we do with today's taxes.<br /><br />Today's taxpayers are used to having their assets tallied, as they must do to qualify for a loan. The system need not be perfect to be better than today's morass. Note that physical assets would be valued at their purchase price, simplifying matters.<br /><br />Smoothing consumption is one form of risk aversion, but it empowers another kind - the kind associated with taking risks to increase income through starting a company, moving to take a new job, etc.<br /><br />"the consumption tax does not actually promote savings relative to the income tax, except because people are effectively more risk averse and will self-insure by saving more."<br /><br />What could this mean? Deferring consumption in favor of savings seems like an obvious win, given our current state of overleverage. High savings countries can prosper, and their position is inherently more sustainable. Arguably, wealthy countries such as the US should be the ones producing net savings while poor countries dissave. By the time when countries have relatively even living standards, then each country should generally be saving only enough to finance its internal investment, but that's decades off.<br />---<br />On 401K's, the difference is that 401K's provide access only to specific asset classes. PCT eliminates such restrictions.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-40364575051003365942011-12-13T06:54:54.661-08:002011-12-13T06:54:54.661-08:00I don't have the data, but I don't think t...I don't have the data, but I don't think that's true. Here's some anecdotal evidence. In my line of work, the new entrants are almost all foreigners. Economics professors are well-paid, but every year when we go out to recruit fresh PhDs to fill assistant professor slots, maybe 10% at most are Americans. In the last 7 years, our department has hired 15 people at all levels. Their nationalities are:<br /><br />US: 3<br />Argentina 3<br />Taiwan 1<br />Canada 1<br />Italy 1<br />Greece 1<br />Austria 1<br />Korea 1<br />Spain 1<br />Turkey 1<br />Brazil 1 <br /><br />Now, you could say that's just consistent with your hypothesis that cheap foreign labor is pushing down wages. But typically people are making that argument about low-skilled workers. The argument there is that the relative supplies of low-skilled to high-skilled workers is increasing, so the relative wages of the low-skilled fall. If a lot of immigrants come into the US, and they look the same as the US labor force in terms of skills, this is just a scaling up of the size of the US economy, and it should not change wages at all.<br /><br />You can't at the same time say that cheap low-skilled Mexican labor is reducing wages, and that cheap high-skilled Canadian labor is reducing wages.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-58192183452687346152011-12-13T06:13:40.497-08:002011-12-13T06:13:40.497-08:00"The United States is highly dependent on hig..."The United States is highly dependent on highly-skilled labor that migrates here from other countries."<br /><br />Nonsense. Marginally higher corporate profits are dependent on keeping pay for scientists and engineers low by hiring immigrants. The low pay reduces the number of domestic students interested in those fields, justifying hiring immigrants, etc. The US can easily produce the number of technical people needed if Microsoft et al. adjusted pay and/or offered a significant number of scholarships.jeffb53https://www.blogger.com/profile/06055456224205941071noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-42602726023462215732011-12-12T12:25:30.783-08:002011-12-12T12:25:30.783-08:00Richard wrote,
"Frank is concerned with exte...Richard wrote,<br /><br /><i>"Frank is concerned with external habit - envy, essentially."<br /><br />Absolutely not. <br /><br />This shows you don't understand it.<br /><br />Envy is a small part of the monumental costs of these externalities. The big parts are position, context, and prestige.<br /><br />Consider the house you grew up in. If it's like most homes of the 1960s and 1970s it had linoleum, carpet, Formica, and fabric. Not wood, tile, granite, and leather. A middle income family of that time thought of these things as high quality. They were proud of them and their house, and got a great deal of enjoyment. But if a middle income family lived in such a house today, linoleum, carpet, Formica, would they think of it as, as high quality? Would they be as proud of it? Would they get as much utility from it?<br /><br />Would they?<br /><br />Or would they get far far less, even if they felt no envy at all of others?</i><br /><br />First of all, your comment suggests that envy is not important, but it does not suggest that external habit is not important. In other words, claiming that Steve is completely wrong in that statement is purely semantics.<br /><br />Second of all, how do you know that the demand for leather and granite is driven by position/prestige? Just because people got along fine in the 1970s without certain things, doesn't present prima facie evidence that they don't need them today. Perhaps there were people in the 1970s who wanted these things, but found them beyond their budget constraint.<br /><br />It seems to me that you and Frank know what is best for everyone and when we protest you conclude that we are all just too ignorant to understand.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-62259176087739940192011-12-12T11:19:17.908-08:002011-12-12T11:19:17.908-08:00I tend to reserve deletion for outright abuse or a...I tend to reserve deletion for outright abuse or a very persistent troll. Richard is typically polite. Definitely persistent and long-winded though.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-70241344211782326122011-12-12T10:54:17.825-08:002011-12-12T10:54:17.825-08:00Anon 10:28 -- Naturally Richard and Bob Frank will...Anon 10:28 -- Naturally Richard and Bob Frank will make that decision, since they already know what is good for me and what is bad for me.<br /><br />Why Steve tolerates Serlin is beyond me; the guy is beyond a crackpot.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-55115411376902058812011-12-10T10:28:34.410-08:002011-12-10T10:28:34.410-08:00Richard wrote of "a non-positional source of ...Richard wrote of "a non-positional source of utility". <br /><br />Tell us, Richard, who is to determine what constitutes "positional" and "non-positional" utility? On what grounds will they make that decision?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-11427724181851305282011-12-10T06:35:08.708-08:002011-12-10T06:35:08.708-08:00Sometimes is more than stupidity. There is somethi...Sometimes is more than stupidity. There is something about signalling (or, a sociologist might say, "status"). If all my friends use an expensive watch and have a fancy car, by refusing to have those I might be signalling to people that I don't belong to that group. This may have subtle but still real consequences to my social interactions.<br /><br />The effect might be most visible in the workplace. Not wearing certain clothes or using certain gadgets could give other people in the workplace a misleading idea of where I fit in the hierarchy. <br /><br />How important this is is an empirical question for which I don't have a clue about the answer.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-15882898546123306542011-12-10T05:42:49.962-08:002011-12-10T05:42:49.962-08:00richard,
your argument seems to be that the tax ...richard, <br /><br />your argument seems to be that the tax system should correct for the stupidity of those who choose to buy positional goods. in other words, you want to use the tax code to encourage bad behavior. not very compelling.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-79877430055524391362011-12-09T22:51:33.108-08:002011-12-09T22:51:33.108-08:00stephen, I agree.
In another paper, the same auth...stephen, I agree.<br /><br />In another paper, the same authors found that in the absence of age-dependent labor income taxes, the optimal capital income tax rate is 36 percent. <br /><br />The optimal progressive labor income tax is 23 percent with a deduction of $7,200 (relative to average household income of $42,000).Jim Rosenoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-17380260263172655132011-12-09T21:40:30.901-08:002011-12-09T21:40:30.901-08:00"Entepreneurial activity has to be very elast..."Entepreneurial activity has to be very elastic with respect to tax rates at the top end. Why would I want to risk my own wealth or that of my close family for a very big payoff with very low probability, if that big payoff is taxed at 73%?"<br /><br />Because current success suggests future success. And if the success is large enough to overflow all of the lower brackets and reach the top bracket (remembered, this is a progressive system, not a flat system) after expenses (since those are deductible) then the rational response would be to double down on the increased likelihood of future success by reinvesting those profits into growth, transforming them into business expenses, and thus avoiding taxation on them.<br /><br />While, they serve to weed out people looking to make a short term buck over those investing in long term growth, that is a clear net positive, because it is exactly the latter that we want to encourage anyway, while the former amounts to leaching vitality out of the market.Karlhttps://www.blogger.com/profile/17795848595613466328noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-9658060133181620112011-12-09T21:07:35.545-08:002011-12-09T21:07:35.545-08:00Richard,
I think what you are talking about is fa...Richard,<br /><br />I think what you are talking about is fashion. For some people it's their clothes that are about fashion, for others it's cars, and for others its their houses or what is in the houses. There's a coordination-game aspect to that, but it's also that we like novelty. I.e. We like novelty but we pursue it in a coordinated fashion. I'm still not seeing anything about this that I think needs to be taxed.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-27023912724555877042011-12-09T20:44:26.039-08:002011-12-09T20:44:26.039-08:00Jim,
No, that's the difference between a seri...Jim,<br /><br />No, that's the difference between a serious model and no model.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-37224546582124261722011-12-09T15:26:37.970-08:002011-12-09T15:26:37.970-08:00See Juan Carlos Conesa and Dirk Krueger, On the Op...See Juan Carlos Conesa and Dirk Krueger, On the Optimal Progressivity of the Income Tax Code, 2006, Journal of Monetary Economics, October<br /><br />• This paper computes the optimal progressivity of the income tax code in a dynamic general equilibrium model with household heterogeneity in which uninsurable labor productivity risk gives rise to a nontrivial income and wealth distribution. <br /><br />• These beneficial effects of a progressive tax system have to be traded off against the efficiency loss arising from distorting endogenous labor supply and capital accumulation decisions. <br /><br />• Using a utilitarian steady state social welfare criterion we find that the optimal US income tax is well approximated by a flat tax rate of 17:2% and a fixed deduction of about $9,400. <br /><br />• The steady state welfare gains from a fundamental tax reform towards this tax system are equivalent to 1.7% higher consumption in each state of the world. <br /><br />There you have it: the optimal tax rate is either 80% or 17.2%! all praises to the two-handed economistJim Rosenoreply@blogger.com