Politics

Marty Feldstein: Time to Cap Tax Deductions

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2013 03 19 Metaphor Trouble

In an editorial for the Washington Post, respected tax economist Martin Feldstein lays out a plan for helping to balance the budget that is so sensible and effective it has little chance of survival in Washington. (I called him “Marty” because that’s what Joel Slemrod, one of my professors at Michigan, always called him.) The plan is simple: instead of trying to eliminate the major tax expenditures (like the mortgage interest deduction), just cap them. He suggests a cap that is based on a percent of AGI (adjusted gross income, which is roughly speaking the amount you start from when calculating what you owe in taxes). This would spread the impact of the cap across all tax payers, but of course the rich would pay much more because they have a much higher AGI.

The plan would raise about $140billion in 2013. By contrast the President’s plan–which is also based on limiting tax expenditures but focuses only on those who make more than $200,000–would raise about $21 billion. Over the next 10 years, Feldstein’s plan would raise $2.1 trillion. President Obama’s would raise $300billion. Feldstein claims that the Obama plan isn’t fair, but I don’t think that’s the strongest argument. The stronger argument is that there’s only but so much cash you can raise if you focuse on the rich. Households making more than $200,000 / year are just a small fraction of the population, and if you include only individuals making $200,000 / year there just aren’t enough of them to raise significant revenue. That should be obvious from the numbers: Feldstein’s plan raises 7 times the revenue, but it does so by applying the tax to about 30 times the population: in other words, the rich still pay much more per-person on Feldstein’s (which is as it should be). Feldstein’s plan is also fair because, by capping deductions, it specifically limits the rich from being able to use expensive attorneys to circumvent the tax code.

The plan should be palatable to both parties. For the Republicans: it moves us towards a balanced budget without increasing tax rates. For Democrats: it increases revenues and makes the tax code more fair (by preventing the rich from being able to avoid taxation). I also like it because a cap on deductions is a necessary first step towards eliminating deductions. I’m not sure if all deductions should be eliminted (Feldstein specifically exempts charitable giving, for example), but most of the big ones (mortgage interest and health care) absolutely should be eliminated. Eliminating the deductions all at once would be too traumatic to our economy, but capping them is a great first step in moving towards a gradual elimination.

Bryan Caplan: Why Minimum Wage Is Still A Bad Idea

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2013 03 15 Bryan CaplanI’ve been a huge fan of Bryan Caplan since “The Myth of the Rational Voter” fundamentally changed the way I think about politics, voting, and democracies. I still haven’t read “Selfish Reasons to Have More Kids”, but I can’t wait to get started. In the meantime, however, here is an excellent article from Caplan about the conflict between theory and empiricial research when it comes to minimum wage laws. The article is great, but also a bit loaded with econ-jargon, so I’ll try to summarize.

Economic theory says that when you increase the cost of something people buy less of it. This is pretty fundamental. (Bryan Caplan calls it “a strong prior”, meaning an initial belief that is solidly held.) If that’s true, then when you implement a minimum wage (raising the price of hiring people), companies will buy less of it (hire fewer workers). Theroetically, this is open-shut: minimum wage laws take jobs away from people who would otherwise have them. It’s like a wealth-transfer from the very-poorest to the almost-as-poor.

Empirical evidence, however, has not found a strong relationship between minimum wage laws and unemployment. So there’s a conflict. Bryan’s piece argues that we should go with the theory instead of the evidence… sort of.

First, he points out the social science evidence is not up to the standard of, say, physics. There are no repeatable experiments, data is missing or hard to measure, and the relationship between cause and effect is often impossible to identify because we’re not talking about gas particles interacting, we’re talking about people interacting. This means everyone has a plan, everyone is guessing what everyone else is doing, and so people don’t necessarily react the way you’d think they would.

Second, and probably more persuasively for people who haven’t studied econometrics, he argues that a lot of evidence does support the idea that minimum wages lower employment. You just have to look at related fields. Caplan considers 4:

  1. Research on the impact of low-skilled immigration shows that lots of new workers (big increase in supply) leads to a small change in wages (small decrease in price). This relationship is called “highly elastic”, and it implies that if the government mandates small changes in price (minimum wage laws) there will be large changes in the supply (the number of people who get jobs).
  2. Research on European labor laws shows that lots of costly laws designed to protect workers create very high unemployment numbers. Increasing minimum wage is just one variety of the kinds of government regulation that increase labor costs, so its reasonable to have the same impact.
  3. Research on other kinds of price control (e.g. rent control) show the same kind of effect: if the government enforces price floors or price ceilings you can expect strong effects in the marketplace.
  4. Keynesian economists believe that one cause of unemployment is price-rigidity in wages. If a company needs to save money, it will usually lay of 10% of the company rather than give the entire company a 10% pay cut. This is an example of price-rigidity in wages: they just don’t go down very often. As a result, if the value of a workers input falls, usually their wages won’t fall. They will just lose their job. This is part of how Keynesian economics explains unemployment during recessions. But the same basic function is at play when minimum wages are hiked: the value of the workers input relative to their output falls. So, by their own logic, shouldn’t unemployment rise?

I also really like the conclusions Caplan draws from all of this:

From the standpoint of public policy, the minimum wage is a symbol of the view that “feel-good” policies are viable solutions to social ills: “Workers aren’t paid enough?  Pass a law so employers have to pay them more.  Problem solved.”  From the standpoint of social science, the minimum wage is a symbol of the myopic view that you can become an expert on X by reading nothing but the leading research that explicitly addresses X: “Does the minimum wage reduce employment?  Read the top papers on the minimum wage.  Problem solved.”

2013 03 15 Minimum Wage

Spring Breakers, Empowerment, and Exploitation

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Film critic David Edelstein, whom I am about to drag into gender politics whether he likes it or not.
Film critic David Edelstein, whom I am about to drag into gender politics whether he likes it or not.

I like David Edelstein’s film reviews so much that I read them even for movies I know I will never watch, which is why I ended up reading his review of Spring Breakers in the first place.

In the review, Edelstein bravely plunges into the shark-infested waters of feminist politics, by painting the movie Spring Breakers as a textbook example of pervy middle-aged men co-opting feminist liberation. The movie features “three starlets from the Disney entertainment megaverse” (Venessa Hudgens, Ashley Benson, and Selena Gomez), and Edelstein says that all three “are obviously there as a gesture of defiance — an attempt to free themselves from their Mouse patriarch overlord and the shackles of corporate teen celebrity.”

So how does that jailbreak go? Well, here’s the second paragraph of the review:

It’s also among the perviest movies ever made — although by spelling out why, I fear I’ll only make some people want to see it more. Spring Breakers opens with a montage of bouncing bare boobs and buttocks barely squeezed into bikini bottoms, the camera gliding up the lengths of young girls’ thighs — see what I mean? That skeevy guy down the street just grabbed his raincoat and headed for the multiplex. The point is that Korine isn’t a passive voyeur. He moves in-in-in on those hot bods — up, down, all around the town. A friend whispered, “The camera is like a giant tongue.” You can almost hear the slurping.

As I said: these are treacherous waters. One of my favorite stories about the politics of porn (I’m going to use that term broadly in this piece, and Spring Breakers seems to have the spirit of porn confined to a “hard-R” rating) is from the Penny-Arcade Expo. One year, there were a bunch of booth babes (attractive women hired to staff convention booths) and the folks at Penny-Arcade didn’t kick them out. They got a torrent of angry mail accusing them of being sexist for allowing girls to be objectified. The next year they asked a particularly over-the-top booth babe to go inside a school bus (it was part of the display, you can imagine why) to keep the convention floor more family-friendly. They got another torrent of angry mail accusing them of being sexist for treating women’s bodies as something to be hidden. Penny-Arcade artist Mike Krahulik wrote a disgusted post asking feminists of the world to please decide what he’s supposed to do, because no matter what he does someone yells at him for being sexist.

So: does porn exploit women or empower them? I don’t know if it was Edelstein’s intent to make a statement on that general question, but he comes pretty close to it: 

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Atlantic: The Unemployment Cliff

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Writing for the Atlantic, Matthew Obrien points out the rather terrifying data on long-term unemployment in the United States.

2013 03 11 Unemployment Chart

The gist of this chart–and of the article–is that once a worker has been unemployed for more than 6 months they become virtually unemployable. Companies don’t even want to consider them. As a result, the high unemployment rate during the current Great Recession can permanently increase poverty in our nation because it has led to people having no job for extended periods of time. That’s all true, and it’s all scary.  But at the end, Matthew makes an erroneous assumption. He writes:

It’s what economists call hysteresis, the idea being that a slump, left untreated, can make us permanently poorer by reducing our future ability to do and make things.

In reality, however, the problem is not just a slump left untreated. It’s a slump maltreated. That maltreatment in this case has been the extension of unemployment insurance basically without limit. This sounds compassionate, but economists have known since at least the 1970s that the direct result of extending unemployment benefits is that people are unemployed for longer. Two studies (both from the 1990s) make this point:

Sharp increases in the escape rate from unemployment both through recalls and new job acceptances are apparent for UI recipients around the time of benefits exhaustion. Such increases are not apparent at similar points of spell duration for nonrecipients. Second, our analysis of accurate administrative data from 12 states indicates that a one week increase in potential benefit duration increases the average duration of the unemployment spells of UI recipients by 0.16 to 0.20 weeks.  – “The impact of the potential duration of unemployment benefits on the duration of unemployment” (Journal of Public Economics) Link

In this paper administrative data from the unemployment-insurance (UI) system are used to examine the distribution of unemployment spells. Hazard plots of the data reveal a strong clustering around the benefit exhaustion point. – “Unemployment insurance and the distribution of unemployment spells” (Journal of Econometrics) Link

In plain English: economists have known since the 1970s that the more you extend unemployment insurance the longer people remain unemployed. Why do we have a huge crisis with people remaining unemployed for 6 months or more? In part, at least, it’s a direct, foreseeable, and well-known effect of extending unemployment insurance. This problem is not merely caused by the Great Recession. It’s also caused by political pandering on the part of politicians in passing policies that sound nice but which lead directly to catastrophe.

On Standing With Rand

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I’ve had a lot of crazy things going on that have put a temporary squeeze on my blogging. Have no fear! I have some great pieces I’m working on. (He said with great humility.) But due to family and professional things and also the Snowquester, I am a little behind my own goal for posting.

And I was about to go to sleep without posting anything at all, but the Sen. Rand Paul’s filibuster (nearly 11 hours so far) has grabbed my attention.

2013 03 07 RandPaul

Senator Paul is filibustering the nomination of John Brennan to serve as CIA head. The problem is not with Brennan. It’s with the Obama Administration’s murky stance on using drones to assassinate Americans even far away from the battlefield. I’ve been following that legal discussion for some time, and the gist of it is that the White House says that they will only exercise that authority if there’s an “imminent” threat to America, but then they defined “imminent” to basically mean “whatever we feel like”. Real issue? Yes.

I’m as cynical as the next guy. There’s no question that Paul has an eye on 2016. Now Senator Ted Cruz is acting as his wingman–asking “questions” that involve just reading Tweets about #StandWithRand (trending at #1 on Twitter, I think), and there’s no doubt that Cruz is riding some coattails. This is politics. Cynicism goes without saying.

But the reality is that I love this symbolic gesture. I love that it’s an old-school filibuster, the kind where they actually stand up and talk the whole time. I love that it’s a legitimate and serious civil liberties concern that is behind it. And yeah, I love that it’s the GOP standing for something. For once.

If you’re interested, and if you read this post soon, watch the live feed here: C-SPAN. (If C-SPAN sold commercials I bet they’d be really excited by this random spike in traffic!)

I don’t know if this is going to be a watershed moment in politics or not. Probably not, but I’ve got a cool feeling watching the feed. (A feeling that was dampened by some disgusting accolades for Ayn Rand, but which remains nonetheless.)

The Problems With Anti-Discrimination

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Malcolm Harris’s The White Market is an essay about race, consumerism, and the television show Breaking Bad. It’s an impressively smart piece of analysis, but it’s also an example of cleverness getting in the way of insight. More particularly, it’s an example of how anti-discrimination can go awry.

The central argument of the article is that in order for Breaking Bad to attract advertisers it has to depict the drug trade in ways that are not only highly unrealistic, but that are unrealistic in very specific ways. In short: Walter White makes meth that is pure. He’s a scientist using industry-grade pharmaceutical techniques and equipment to make exquisite product that he sells to that demographic known above all else for its taste and discernment: meth-heads.

2013 02 28 Meth Lab Comparisons
On the left: Walter White’s fictional meth lab. On the right: a real meth lab.

As Harris observes:

The idea that people will always pay more for purer or small-batch products makes a lot of sense to demographics used to paying more for quality gimmicks — conveniently, the same demos advertisers pay a premium for. But it doesn’t make sense for the consumers Breaking Bad so sparingly depicts. When we do see White’s ultimate customers, they’re zombies: all scabs and eroded teeth. We’re not talking about impulse buyers or comparison shoppers here; it’s a textbook case of what freshman economics students call inelastic demand. As Stringer Bell told D’Angelo Barksdale in another show about drugs, in direct contrast to what Walter claims, “When it’s good, they buy. When it’s bad, they buy twice as much. The worse we do, the more money we make.”

So far so good: if you want Dodge to come to you and ask for product placements you have to turn Walter White into an artisan. He’s the indie micro-brewer of New Mexico’s meth market. But then Harris gets to the second phase of his essay:

Which brings us to the other thing that sets White and Pinkman apart from their competitors: color. And I don’t mean blue.

The white guy who enters a world supposedly beneath him where he doesn’t belong yet nonetheless triumphs over the inhabitants is older than talkies. TV Tropes calls it “Mighty Whitey,” and examples range from Tom Cruise as Samurai and Daniel Day Lewis as Mohican to the slightly less far-fetched Julia Stiles as ghetto-fabulous. But whether it’s a 3-D Marine playing alien in Avatar or Bruce Wayne slumming in a Bhutanese prison, the story is still good for a few hundred million bucks. The story changes a bit from telling to telling, but the meaning is consistent: a white person is (and by extension, white people are) best at everything.

This, for me, is where the thread of the piece begins to unravel.

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Why I Love Mommy Blogs

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Throughout Western history, literature has been dominated by men. Obviously some women have succeeded despite the odds, from the Brontë sisters and Jane Austen to J. K. Rowling, but as these charts show the disparity remains quite stark.

This is one of about 40 charts from various major literary publications. Women are the majority in 2 of them.
This is one of about 40 charts from various major literary publications. Women are the majority in 2 of them.

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Bob Woodward: Obama and the Sequester

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2013 02 25 Bob WoodwardSo… the sequester showdown is coming. I haven’t written much about it because I hate politics more with every passing hour and I wish a pox on both houses. Fervently. But I’ve been fascinated by the reporting of Bob Woodward. From the Washington Post four days ago:

My extensive reporting for my book “The Price of Politics” shows that the automatic spending cuts were initiated by the White House and were the brainchild of Lew and White House congressional relations chief Rob Nabors — probably the foremost experts on budget issues in the senior ranks of the federal government.

Obama personally approved of the plan for Lew and Nabors to propose the sequester to Senate Majority Leader Harry Reid (D-Nev.). They did so at 2:30 p.m. July 27, 2011, according to interviews with two senior White House aides who were directly involved.

And then yesterday via CNBC:

Several inside 1600 Pennsylvania have tangled with the legendary journalist Bob Woodward. Few emerged unscathed.

The Obama administration is now fighting back against the best-selling author who made his name and reputation in reporting the Watergate scandal that led to the resignation of Richard Nixon. And it’s revealing what they’re not challenging—the miasma of bad faith with Republicans over the budget and the $85 billion in sequestered budget cuts expected to begin on Friday.

I think it’s important information to understand that the sequester originated with President Obama because when the President of the United States lies to the nation about an important issue people should know. Right now the Democrats are basically betting that the GOP will be blamed for the sequester and they are relying on a friendly media to  bolster that impression. But the Republicans–no paragons of virtue or common sense among the bunch–seem to think the Democrats have overreached. Or maybe they are just having a temper tantrum. I don’t know.

I just know that no good can come of serious policy debates mired in falsehood and bad faith, and right now that’s what we’ve got. Thanks to both sides. I wish I had more to offer, but these days I don’t. The problems facing are nation just aren’t that hard. Any number of alternative solutions could be a substantial improvement, but as long as the public treats it like a game of football I don’t have a lot of hope for that.

Is Early Learning Helpful?

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2013 02 25 Daycare

I’ve read and heard lots of studies suggesting that early childhood education (like preschool) is vitally important in helping put kids on the right track, and even in combating some of the negative consequences of poverty. This has made me a pretty strong supporter of this kind of intervention as an anti-poverty policy. And yet…

“Premature socialization,” says Dr. Neufeld, “was always considered by developmentalists to be the greatest sin in raising children ….[w]hen you put children together prematurely before they can hold on to themselves, then they become like [the others] and it crushes the individuality rather than hones it.”

Read the rest of this contrarian view here.

As usual? The more I learn, the less I know. Any of my readers know about this, or just have any insight or opinions?