Category Archives: Conservatism

Two Approaches to Fiscal Policy

I think it is fair to point out that Reagan’s big spending was likely more for defense than now, and the decline is from a huge peak under President Obama.

Consider the following graph, with both series (coincident series for economic activity) normalized to 2011M01=0.

Figure 1: Log coincident economic indexes, both normalized to 2011M01=0. NBER defined recession dates shaded gray. Source: Philadelphia Fed, NBER, and author’s calculations.

One series pertains to the state I live in now (Wisconsin), and has pursued a policy of spending cuts and tax cuts skewed towards high income groups. The other is the state I lived in before coming to Wisconsin (California). It dealt with the serious fiscal problems it faced in part by cutting spending, and by raising taxes. Interestingly, both states had new governors taking power in January 2011 (Walker in Wisconsin, Brown in California). And in both cases, one party holds power in both houses of the legislature, as well as holding the governorship — Republicans in Wisconsin, Democrats in California.

It’s not surprising to anybody with acquaintance with data (or just plain reality) that the red line is Wisconsin, the blue is California. While this is not a controlled experiment — there are many other variables of importance (although they both share the same monetary policy) — the comparison is suggestive.

So, for completeness’s sake, here is the figure again, series labeled, and the US series added.

Figure 2: Log coincident economic indexes for California (blue), Wisconsin (red), and US (black), all normalized to 2011M01=0. NBER defined recession dates shaded gray. Source: Philadelphia Fed, NBER, and author’s calculations.

More on California here.

Two Approaches to Fiscal Policy
Menzie Chinn
Tue, 27 Aug 2013 04:00:02 GMT

Breitbart: the New Elvis Presley?

On the subject of Breitbart, I have a comment on an image regarding him I see on the web often:

Does Does anyone else think it seems like a kind of creepy religious icon, and is Breitbart being deified partially because of his untimely dealth?  Like a new Elvis Presely?  I think the image above evokes something like this of Jesus below:

The treatment of Breitbart’s  hair seems to me to evoke the crown of thorns.

The slogan Breitbart is Here seems quite creepy too.  Pretty clearly Breitbart isn’t here, unless you think he has supernatural powers.  Is he watching us all RIGHT NOW?

How Marginal Tax Rates Work

Is really possible people are as confused as this suggests???  Even with preogressive taxes, you don’t end up with less income from more work, just only part of the extra income from more work.  I think people understand this, but aren’t expressing themselves very clearly here.

Here is an exercise. What is wrong with the way the people quoted below are thinking?

1. Kristina Collins, a chiropractor in McLean, Va., said she and her husband planned to closely monitor the business income from their joint practice to avoid crossing the income threshold for higher taxes outlined by President Obama on earnings above $200,000 for individuals and $250,000 for couples.

Ms. Collins said she felt torn by being near the cutoff line and disappointed that federal tax policy was providing a disincentive to keep expanding a business she founded in 1998.

“If we’re really close and it’s near the end-year, maybe we’ll just close down for a while and go on vacation,” she said.

2. … [the extra money that comes with a raise] “is nice, but it could very well bump you into the next tax bracket, possibly leaving you with less money than you had before the raise.”

For an answer, see the wikipedia entry on “Tax Rate” and Matthew Yglesias’s posts “Nobody Understands How Taxes Work,” “Tax Whiners Don’t Understand How Marginal Tax Rates Work,” and “Tax Ignoramuses.”

How Marginal Tax Rates Work
Fri, 23 Nov 2012 13:00:57 GMT

Seems dead on doesn’t it?

From Bleeding heart libertarians:

…F. A. Hayek famously argued, conservatism is more a cast of mind than a set of principles.  It opportunistically grabs any available principles to justify the sort of social order it likes, with the people it likes governing their social inferiors. Since Malthus, many conservatives have appropriated free market, limited government principles from libertarians and classical liberals.  But what they mean by limiting “government” in favor of “markets” and the “private sector” is limiting the power of liberal democratic governments—whether states, labor unions, or workers’ councils—to impose limits on the power of private authoritarian governments such as the firm, the patriarchal family, and the church.

My emphasis added.

Corporations are People, My Friend

This statement has always seemed to me to clearly true.  Maybe  the question is what restrictions on their rights are needed to create a level playing field with people that are more obviously people?

Video of Mitt Romney saying “Corporations are people”

The title is one of my cousin Mitt’s most famous quotations. This statement has not served him well politically, but I want to agree with him. There are two potential meanings of this statement, and I want to agree with both: 

  1. When the government taxes a corporation, the tax ultimately falls on some human being.
  2. When a corporation makes a decision, some set of human beings is behind that decision, and they are morally responsible for that decision.

Mitt wanted to emphasize the first point: that any tax on corporations is ultimately paid by some human being. That is a sound principle in the academic field of Public Finance. The big problem with corporate taxes is that, despite efforts on the part of many economists, economists don’t have that good a handle on exactly who ends up paying them. Whatever someone says on this score, I think I can guarantee that it will be controversial even at the purely academic level—though I would be happy to learn of a widespread academic consensus on this that I missed somehow. So if the intent is to make taxes depend on income, for example, it is a lot easier to get the intended effect on that score by taxing people directly rather than by taxing corporations.

I want to focus more on the second meaning: when a corporation makes a decision, some set of human beings is behind that decision, and they are morally responsible for that decision. By and large, those who have the most power in important corporations are well paid, and so count as members of “the rich.” So I will hold “the rich” responsible for decisions that corporations make. When a corporation makes a decision or takes an action that respects truth, I will attribute that decision to “the honest rich.” Whenever a corporation makes a decision or takes an action that does not respect truth, I will attribute that decision to “the dishonest rich.” To my mind, that adds moral clarity compared to talking about the decisions of, say, “Microsoft” or “Lehman Brothers.” When approaching corporate decisions ethically, it minces words not to recognize the people behind the decisions, even when their exact identities are not clear.

Among some of those who viscerally reject the statement that “corporations are people” I think there is a hidden impulse that is quite dangerous: the impulse to read CEO’s and other key corporate decision makers out of the human race. Even when a CEO commits evil, he or she is still a human being, and needs to be treated with the dignity that everyone deserves for being a human being, despite his or her crimes. 

Now, although corporations are people, typically a corporation is not a person, but instead many people. To the extent that corporate decisions reflect the outcome of a game  among many people (in economists’  technical sense of the word “game”), the actions of a corporation may not reflect any coherent objective function, as I discuss in my post Jobs And in that post, one of my key recommendations is each corporation be encouraged or even required by law to articulate what its objective function is intended to be, as a fictive legal person. Then its actions can be judged in relation to the intended objectives of the corporation. In that way, we can try to protect people from Frankenstein monsters of corporations that are doing things no one intends because of internal games being played. And this policy of asking corporations to articulate their objective function would help somewhat in clarifying whether the moral responsibility key decision makers in corporations bear is a responsibility for intending what the corporation did, or a responsibility for letting the corporation become a Frankenstein monster that is doing something no one intends.

As I wrote the last paragraph, I was reminded of Adam Smith’s invisible hand of the free market that leads to good results that go beyond what the participants in the market intend. But unless a corporation were structured internally very much like a market, I don’t know of any theorem suggesting that an invisible hand will work within a corporation to make good things happen that no one intended. And the wisdom of literature such as Scott Adams Dilbert or TV shows such as The Office suggest, to the contrary, that entropy often reigns—so that corporations often do less well than the intentions of the people in them.

Even in the small world of the University of Michigan and the medium-sized world of the Economics profession, I have seen how simple justice usually requires someone to put in serious time and effort to make that justice happen. Sadly, justice—or any kind of good behavior on the part of an organization—doesn’t come for free. I honor those who help make good things come from organizations, and hold responsible those who don’t, even if it is from inaction.

Putting together everything I have said about the ethical sense of “corporations are people,” I come to a key point. For anyone who has a modicum of power within a corporation, it is possible to be a member of “the dishonest rich” by my definition without ever lying and deceiving personally, if by inaction one makes no efforts to prevent one’s corporation from lying and deceiving.

See my first post on MItt: “Rich, Poor and Middle-Class,” inspired by Mitt’s saying “I am not concerned about the very poor …’

Corporations are People, My Friend
Sat, 14 Jul 2012 02:16:00 GMT

Posner dumps (on) Repubs


The intellectual trend away from the political right has been going on for some time, reversing the trend in the opposite direction that dominated the 1970s and 1980s[1]. But this NPR interview with Richard Posner who says

there’s been a real deterioration in conservative thinking. And that has to lead people to re-examine and modify their thinking

is probably the most notable single example so far, for several reasons.

First, in intellectual terms, he’s a really significant figure.  After Ronald Coase, he’s the most important figure in the field of “Law and Economics” which played a crucial role in the resurgence of conservative/free-market legal thinking. Moreover, while Coase wrote some brilliant papers in his long and influential career[2], he wasn’t an intellectual movement builder as Posner  has been.

Posner is one of a small minority on the intellectual right who have responded to the economic crisis by changing their view of the world, rather than by finding more and more absurd defenses of the indefensible. There must be quite a few others who realise they have backed the wrong  horse, but have chosen to remain quiet rather than making an open break.

Second, the terms of his attack on the US Republican party are scathing by any standards, but particularly for a professor and Federal judge, talking about his own erstwhile allies. His discussion is peppered with terms like “goofy”, “crackpot” and “lunatic”. That’s a pretty fair description of the US right these days, but it’s still not commonly heard on NPR.

Finally, it’s interesting to see him suggest that Chief Justice Roberts might follow the same path, in response to the campaign of leaks against him. I’m not sure I buy this, but even the suggestion should produce some interesting responses on the right.

fn1.  In the US context, the shift started, I think, with Kevin Phillips and Michael Lind in the 1990s, but didn’t really get going until the Bush Administration.

fn.2 He’s still alive at 101, but obvioulsy hasn’t written much lately. His reputation rests primarily on two papers, one from 1937 and the other from 1960.

Posner dumps (on) Repubs
John Quiggin
Sat, 07 Jul 2012 04:33:57 GMT

Another Great Ron Paul Video