American Revolution: Taxation *and* Representation?

A week late, but what were some of the political economics behind the American Revolution? Here’s the abstract from a new working paper:

Why did the most prosperous colonies in the British Empire mount a rebellion? Even more puzzling, why didn’t the British agree to have American representation in Parliament and quickly settle the dispute peacefully? At first glance, it would appear that a deal could have been reached to share the costs of the global public goods provided by the Empire in exchange for political power and representation for the colonies. (At least, this was the view of men of the time such as Lord Chapman, Thomas Pownall and Adam Smith). We argue, however, that the incumbent government in Great Britain, controlled by the landed gentry, feared that allowing Americans to be represented in Parliament would undermine the position of the dominant coalition, strengthen the incipient democratic movement, and intensify social pressures for the reform of a political system based on land ownership. Since American elites could not credibly commit to refuse to form a coalition with the British opposition, the only realistic options were to maintain the original colonial status or fight a full-scale war of independence.

Happy belated July 4th!

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Why Prophets?

Stormy Sea at Night by Ivan Aivazovsky (1849)

This post is part of the General Conference Odyssey.

Mormon doctrine emphasizes a combination of radical individual freedom and responsibility on the one hand with an emphasis on obedience to a hierarchy of Church leadership on the other. It’s an unstable tension that is prone to error in two different directions. One extreme can be summed up by the (heretical) idea that “When the prophet speaks, the thinking is done.” The other extreme questions why bother having prophets at all if they’re fallible and we have to come to our own conclusions about their teachings anyway.

But we don’t have to pick between the extremes, and Elder Groberg’s talk is a great explanation of why that’s so.

There are those who, through years of experience and training, and by virtue of special divine callings, can see farther and better and more clearly—and can and will save us in those situations where serious injury or death—both spiritual and physical—would be upon us before we ourselves could see.

This is the summary to a story from his life when an experienced sea captain was able to navigate through a narrow gap in a reef in the middle of a nighttime storm by seeing a light that no one else on the boat could see. It’s a great metaphor because it doesn’t presuppose infallibility or imply abdication of responsibility. Prophets see more, but they don’t see everything, and we’re still responsible for heeding their counsel, or not.

It makes sense to listen to prophets because, as Elder Groberg states, “We are in the midst of a major storm over moral values that will get worse before we arrive home.” But listening doesn’t mean letting prophets—or anyone else—lead our lives on our behalf. We are each, as Sartre said, condemned to be free. We can try and pretend to outsource the weighty decisions in our lives, but it won’t work. Like the drummer said, “if you choose not to decide, you still have made a choice.”

Listening to prophets is optional.

Being ultimately responsible for our own decisions isn’t.

Check out the other post from the General Conference Odyssey this week and join our Facebook group to follow along!

Corporations, People, and Taxes

I was reviewing some old blog posts and such and came across the following. Remember this beautiful exchange?


Awww, yes. The “evil corporations” trope, i.e. the “confusion between abstract categories and flesh-and-blood human beings.”[ref]Thomas Sowell, Economic Facts and Fallacies, 2nd ed. (New York: Basic Books, 2011), 153.[/ref] Explaining the fallacious nature of this thinking, Thomas Sowell writes,

Abstract people can be aggregated into statistical categories such as households, families, and income brackets, without the slightest concern for whether those statistical categories contain similar people, or even the same number of people, or people who differ substantially in age, much less in such finer distinctions as whether or not they are working or whether they are the same people in the same categories over time. Abstract people have an immortality which flesh-and-blood people have yet to achieve.[ref]Thomas Sowell, Intellectuals and Society (New York: Basic Books, 2009), 112-113.[/ref]

What Romney’s hecklers (affiliates of Iowa Citizens for Community Improvement) and critics seem to have missed is the abstract nature of “greedy corporations.” The rhetoric invoked by these individuals often describes corporations as quasi-personal, transcendent entities that exist above and beyond flesh-and-blood people. As one writer notes, “Romney doesn’t mean that corporations are entitled to some of the legal rights of people in the Citizens United sense. He means it in the sense that the money made by corporations flows in and out of human hands—or pockets, in the language of the heckler who hoisted himself on his own metaphorical petard.” The abstractions of “corporations” and “the rich” are frequently linked, if not synonymous. Yet, empirical evidence suggests that corporate taxes negatively impact actual people. And not the rich ones you would hope for.[ref]See Matthew H. Jensen, Aparna Mathur, “Corporate Tax Burden on Labor: Theory and Evidence,” Tax Notes (June 6, 2011) for a nice rundown of the literature.[/ref]

A 2010 working paper explored international tax rates and manufacturing wages across 65 countries over 25 years. It suggests that a 1 percent increase in corporate tax rates decreases wage rates by 0.5-0.6 percent. “These results also hold for effective marginal and average tax rates” (pg. 22). A 2012 study[ref]Ungated working paper version here.[/ref] looked at over 55,000 companies in 9 European countries between 1996 and 2003. It found that every $1 increase in tax liability leads to a $0.49 decline in wages. This suggests that about 50% of the increased tax burden is passed on to the labor force over the long run. A 2007 Kansas City Fed working paper used cross-country data between 1979 and 2002 to find that a 1 percentage point increase in the average corporate tax rate led to a 0.7% decrease in annual gross wages; a decrease that was more than 4 times the amount of the corporate tax revenue collected. Furthermore, the “burden of the corporate tax on wages is shared equally across skill-level, suggesting that the corporate tax may not be as progressive as many politicians assume. Also, as the economy becomes more global, raising the corporate tax may result in lower than predicted corporate revenue increases due to the ability of firms to avoid taxes more effectively” (pg. 22). Another 2007 paper looked at a panel of U.S. multinationals across 50 countries over a 15-year period. The authors found that 45-75% of the corporate tax is shouldered by labor, with the rest falling on capital. Similarly, a 2013 study finds that a $1 increase in corporate tax liability leads to decreases in wages by about $0.60. The authors conclude,

Our findings suggest that labor shares a significant part of the burden of corporate income taxes. A direct calculation of the mean marginal effect of the corporate income tax from our estimates suggests that a 10 percent increase in the tax rate would decrease the average wage rate by 0.28–0.38 percent. Labor shares at least 42 percent of the burden of the corporate tax and possibly more. The average labor share of the corporate tax burden is around 60–80 percent (pg. 233).

A 2016 study[ref]Earlier, ungated version here.[/ref] of state corporate tax rates concluded that 25-30% fell on landowners and 30-35% fell on workers. A 2016 paper for the Federal Reserve looked at 131 tax increases and 140 tax cuts across 45 states going back to 1969. It found that “a one percentage-point increase in the top marginal corporate income tax rate reduces employment by between 0.3% and 0.5% and income by between 0.3% and 0.6%, measured relative to neighboring counties on the other side of the state border. These estimates are remarkably stable: they remain essentially unchanged regardless of local characteristics such as the flexibility of local labor markets, income levels, population density, or the prevalence of small businesses in a county. They are also stable across the business cycle and little changed when we control for localized industry-level shocks by comparing employment and income in bordering counties within the same industry” (pg. 3). A 2009 study by economist Robert Carroll found that across state lines “a one percent drop in the average tax rate leads to a 0.014 percent rise in real wages five years later.” In other words, wages rise $2.50 for every dollar reduction in the state-local corporate income taxes. The opposite also occurs: every dollar increase in tax rates leads to a $2.50 loss in wages. Drawing on recent research, Carroll suggests that “the least mobile factor of production is likely to bear the burden of a tax. In an increasingly global economy, labor is the least mobile because capital can flow freely across borders…When workers have more capital to work with, their labor productivity and wages will rise” (pg. 1). An abstraction is unable to pay its demanded “fair share” and instead places the economic burden on individuals. “After all, businesses are merely convenient ways of organizing economic activity,” writes Carroll, “so while businesses write checks to pay the corporate tax (and other taxes), the burden of those taxes falls ultimately on the individuals who depend on the corporations, in their roles as investors, workers, or consumers” (pg. 2). This is why Carroll finds numerous benefits to cutting corporate taxes, including higher long-term growth, higher wages and living standards, lowered tax burdens on low-income taxpayers and seniors, and boosted entrepreneurship, investment, and productivity.


The point of this review is to remind us that policy is complicated and often counterintuitive. We need to look at the empirical evidence. And if there isn’t much, perhaps we should wait until there is. The effects are real and they impact real people. The problem is that rarely will you achieve a utopian outcome. As I’m fond of saying, “There are no solutions; there are only trade-offs.”[ref]Sowell, The Vision of the Anointed: Self-Congratulation as a Basis for Social Policy(New York: Basic Books, 1995), 142.[/ref]

World Bank: Immigrants & Productivity

A new World Bank policy brief reviews the effects of immigrants on productivity:

For a sense of net effects –positive or negative, we looked at 22 primary studies. Explicit analysis on skilled versus unskilled immigrants is rare. So, most of the econometric results pertain to the effects of total immigrants. They remain instructive, given the overwhelming direction of migrant flows from less educated to more educated countries.

…In our RPB, broken down to the three components of labor productivity, positive effects from total immigrants are especially apparent through TFP. There is no statistically significant impact on physical capital per worker suggesting that capital accumulation need not be adversely affected. Human capital per worker is somewhat negatively affected, indicating that immigrants’ compositional effect on skills tends to outweigh the effect on natives’ skills upgrading. In the studies that analyze labor productivity alongside all its three components, positive immigrant effects on TFP more than offset the effects on physical capital and human capital per worker.

Outcomes vary across countries. Positive productivity effects from total immigrants are obvious for the U.S. – analysis using state-level data links task specialization of less-educated natives, induced by unskilled immigrant inflows, to TFP growth. Studies suggest that the complementarity and scale channels operate in Malaysia, but also that automation is somewhat hindered. Actual empirical evidence of net productivity effects seems mixed, and not representative enough of the economy as a whole, tending to focus on the manufacturing sector. In contrast, there is also the unique example of a large influx of skilled immigrants into Israel (fleeing the collapse of the Soviet Union) not having positive effects on productivity in the manufacturing sector.

More than anything, the cross-country evidence highlights that underlying the likelihood of positive net productivity effects is how immigrants link to specific gaps in the economy – regardless of skill level. And the response of agents, markets and institutions in host countries.

In fact, the report found that “on balance, total immigrant effects on labor productivity are statistically insignificant to positive” with “statistically significant positive effects” for total factor productivity (pg. 2). In short, “The economic case for an outright ban on unskilled immigrant workers is weak.”

And now I’ll leave you with the Hamilton Mixtape.

2017: The Best Year Ever

I know I said the same thing about 2016. And 2015. Even 2013. But that’s because things continue to get better. Nicholas Kristof writes in The New York Times, “There’s a broad consensus that the world is falling apart, with every headline reminding us that life is getting worse. Except that it isn’t. In fact, by some important metrics, 2016 was the best year in the history of humanity. And 2017 will probably be better still…Polls show that about 9 out of 10 Americans believe that global poverty has worsened or stayed the same.” And yet,

Every day, an average of about a quarter-million people worldwide graduate from extreme poverty, according to World Bank figures. Or if you need more of a blast of good news, consider this: Just since 1990, more than 100 million children’s lives have been saved through vaccinations, breast-feeding promotion, diarrhea treatment and more. If just about the worst thing that can happen is for a parent to lose a child, that’s only half as likely today as in 1990. When I began writing about global poverty in the early 1980s, more than 40 percent of all humans were living in extreme poverty. Now fewer than 10 percent are. By 2030 it looks as if just 3 or 4 percent will be. (Extreme poverty is defined as less than $1.90 per person per day, adjusted for inflation.) For nearly all of human history, extreme poverty has been the default condition of our species, and now, on our watch, we are pretty much wiping it out. That’s a stunning transformation that I believe is the most important thing happening in the world today — whatever the news from Washington.

What’s more is that “global income inequality is…declining. While income inequality has increased within the U.S., it has declined on a global level because China and India have lifted hundreds of millions from poverty.”[ref]Nathaniel and I covered global poverty and inequality in our 2014 SquareTwo article.[/ref] Today “some 40 countries are now on track to eliminate elephantiasis. When you’ve seen the anguish caused by elephantiasis — or leprosy, or Guinea worm, or polio, or river blindness, or blinding trachoma — it’s impossible not to feel giddy at the gains registered against all of them.” In “the 1960s, a majority of humans had always been illiterate; now, 85 percent of adults are literate. And almost nothing makes more difference in a society than being able to read and write.”

For me, this was the clincher in Kristof’s piece:

On a recent trip to Madagascar to report on climate change, I was struck that several mothers I interviewed had never heard of Trump, or of Barack Obama, or even of the United States. Their obsession was more desperate: keeping their children alive. And the astonishing thing was that those children, despite severe malnutrition, were all alive, because of improvements in aid and health care — reflecting trends that are grander than any one man.

He concludes, “The most important thing happening is not a Trump tweet. What’s infinitely more important is that today some 18,000 children who in the past would have died of simple diseases will survive, about 300,000 people will gain electricity and a cool 250,000 will graduate from extreme poverty.”

How’s that for a little pick-me-up?

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It’s Supposed to Be Hard

This post is part of the General Conference Odyssey.

Here are three quotes from three different talks that follow up on the themes from my last post.

Life was made for struggle; and exaltation, success, and victory were never meant to be cheap or to come easily.

Elder Joseph B. Wirthlin

No one is perfect, but everyone should be striving for perfection.

Elder William H. Bennet

The Lord expects more of the disciple than ordinary response to need, to opportunity, to commandment. He expects more humility, more hearkening, more repenting, more mercy and forgiving and faith, more service and sacrifice.

Elder Marion D. Hanks in More Joy and Rejoicing.

These are some pretty stern quotes: high standards, striving for impossible perfection, and an intentionally difficult world. Then Elder Hanks goes on:

All the law is comprehended in this, that we love God and each other.

French philosopher and Jesuit priest Pierre Teilhard de Chardin (May 1, 1881 – April 10, 1955)

He also cites Pierre de Chardin[ref]I had no idea who that was, either.[/ref]:

The day will come when after harnessing the ether, the winds, the tides, gravitation, we shall harness for God the energies of love, and on that day for the second time in the history of the world man will have discovered fire.

Without the strict discipline of duty and striving and opposition, we cannot have love. All we can have is a kind of watered-down sentimentalism or maybe cruel indifference masquerading as tolerance. And yet—without finding an ultimate aim in love—duty and striving and opposition are simply so much arbitrary pain or a thin veneer over a nihilistic, Nietzschean struggle for power.

True discipleship is found in the tension between these poles.

Check out the other posts from the General Conference Odyssey this week and join our Facebook group to follow along!

Regulation vs. Innovation

AEI’s James Pethokoukis has a nice little blog post on the negative effects of ill-conceived regulation:

So I very much liked a Mercatus study last year finding US economic growth has been slowed by an average 0.8% per year since 1980 due to the cumulative effects of regulation. Also a favorite of mine: A 2013 study from economists John Dawson of Appalachian State University and John Seater of North Carolina State University, Federal Regulation and Aggregate Economic Growth, that estimates the past 50 years of federal regulations have reduced real GDP by roughly two percentage points a year, or nearly $40 trillion. Both studies show pretty sizable effects from smarter regulation or deregulation.

He points to new articles at Reason and National Affairs demonstrating that the Federal Communications Commission limited tech advancement, including cell phones. As economist Thomas Winslow Hazlett writes in his Reason piece,

Image result for cell phoneWhen AT&T wanted to start developing cellular in 1947, the FCC rejected the idea, believing that spectrum could be best used by other services that were not “in the nature of convenience or luxury.”…  A child conceived at the same time as cellular would have been 37 years old by the time the first commercial cellphone—Gordon Gecko’s $3,995 Motorola DynaTAC 8000X brick—was released onto the market. Once the blockage was cleared, progress popped. Soon, the science fiction vision of the Star Trek communicator was reality.

Check them out.