Employment for All: A Debate

Thursday, September 1, AD 2011

Alex of Christian Economics is a thoughtful guy who adheres to some economic theories (specifically the Modern Money Theory of economics) that I don’t hold with. Thus marking out one of my rare areas of agreement with Paul Krugman.

Alex and I were looking for topics to have a sort of slow-motion blog debate over, and there seems no better place to start than one of the bigger policy proposals which many MMT adherents support: having the government become an Employer of Last Resort. Alex has a substantive post up to day making the case for an employer of last resort program from a Catholic and economic point of view. I’ll be writing and posting reply-post in the next couple days.

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40 Responses to Employment for All: A Debate

  • I’ve suggested something similar in the past. Blackadder responded that it might be cheaper to hand out money without the make-work. Also, to better comport with CST, the wages would have to depend on household size and that might destroy the economic benefits of the plan than Alex talks about.

  • “It is better to light one candle than to curse the darkness.”

    Do your part.

    In 2012 vote for anybody but job-destroyer Obama and dem/progressive/tree-hugger economy destroyers.

  • One of many, many problems with the government as an employer of last resort is that the government creates no wealth. It merely is a parasite existing off of the efforts of the private sector. When government expenditures get too far out of whack in regard to the ability of the private sector to create wealth, the ill effects on the host of the parasite are rapidly apparent. A great lab experiment of this taken to the furthest extreme was the old Soviet Union where the parasite killed and attempted to supplant the host. The Soviet currency was worthless paper outside of the Soviet Union and the workers of the Soviet Union, and everyone else luckless enough to live there, except the nomenklatura of the party, enjoyed, probably not the proper term, a gray Spartan existence. The life was summed up by a proverb among Soviet workers: “They pretend to pay us and we pretend to work.” After so many disasters along these lines, I wonder when we will be free of the superstition that government has any wealth of its own for anything, other than what can be squeezed from the private sector?

  • RR — I’m not sure how it would be cheaper to just give the unemployed money, unless you gave them less than a minimum wage. Also, determining a just living wage is extraordinarily difficult. One has to take into consideration size of household, geographical location, particular needs of the family (such as a child having a disability that requires more care than say another family’s children), etc. It also requires prudence and temperance on the part of the wage-earner to use his/her wages justly. In regards to the program, I recommend a flat wage to all in the program, with any extra need covered by other welfare programs.

    T. Shaw — I’m not sure how that adds to the discussion.

    Donald — You clearly are no fan of government, and that is your prerogative, but I disagree that the government is simply a parasite taking from the private sector. The government’s initiatives often create more wealth in the private sector than the private sector would create by itself. The government can certainly appropriate all (or most) private output to itself as the Soviets did, or it can appropriate some output toward socially desirable goals agreed on by a group of representatives elected by the people. Do I think that it does this perfectly? Certainly not…there is much corruption in Washington and Wall Street, but simply regarding government as a parasite is unhelpful and also doesn’t add to the discussion. If it is ALWAYS a parasite sucking from the private sector, then tell me how and why.

    The job guarantee program is meant to give the private sector more wealth, not take it away or create it for government.

  • “If it is ALWAYS a parasite sucking from the private sector, then tell me how and why.”

    The government has no funds for its initiatives other than what is taken from the private sector. The creation of money out of thin air only has value based on the creation of wealth in the private sector. Zimbabwe can print as many trillion dollar notes as it wishes and all it will have is a heap of paper. By definition government is a parasite on the private sector. The only exception I can think in regard to this is the sale or rental of assets owned by the government, such as federal land, but the income derived thereby is minimal.

    Have private industries made out like bandits due to government spending? Of couse. However, government is merely appropriating resources with one hand, and spending it in the private sector with another. Much better, if a productive economy is the goal, to simply lower taxes and allow more of the funds to be used in the private sector, rather than have the funds take a detour through the sticky fingers of government.

    Of course when the government attempts to own industries, a la nationalization, the result is invariably disastrous for the taxpayer, with inefficiency at high cost the result.

  • Milton Friedman said it well back in 1978:

  • Alex, there would be significant bureaucratic costs that can be avoided by just cutting checks without the work requirement.

  • Somebody’s lamenting the lack of Dickensian prisons and workhouses?

  • RR: Where will Obama get the money? If you envision the government is the economy . . .

    Alex,

    Repeat after me. Supply and demand; uncertainty and volatility; action and reaction; rational individuals acting in their best interests.

    The Obama government is the problem.

    The consumer (70% of the economy) isn’t buying.

    The only bright stop exports is crash diving.

    Business isn’t hiring.

    Don’t listen to what the low lifes in the WH and senate say. Watch what they do.

    Uncertainty and volatility. Obama’s gangster Gulf drilling moratorium (one of hundreds of job killers) cost over 200,000 jobs. The EPA war on coal and electric generating utilities will soon reap its devastating effects. Business doesn’t know how much obamacare will cost and it won’t hire. Dodd-Frank and the Consumer Financial Protection Bureau will impair consumer credit supplies and raise costs.

    They are destroying the economy to save Gaia from SUV exhaust and 86 trillion bovine farts. SWAT teams attack farmers to ensure they don’t sell whole milk. The banks are starting tens of thousands more lay-offs. The robo-signing witch hunt du jour will lessen availability of residential credit and raise costs. Moronic loan modification programs and four years (12 years in the worst SMSA’s) of excess housing supply will keep housing in depression for years. Construction jobs don’t exist. Obamacare will cost millions of jobs. I could go on for about 200 pages.

    Obama and the senate are sworn enemies of the private sector and they are killing it.

  • Alex has taken the time to write a fairly in-depth post explaining his views — I want to strongly encourage people to read that an respond to it rather than responding to my couple sentence summary. (If you’d rather respond to what I write, hold off and respond when I get my response post written.)

  • I question the spiritual benefits of having a job with no accountability, which is exactly what is being proposed. If no one can be fired from these jobs then no one has to do anything for their money. If the “living wage” being offered was not that much lower than what I’m making now as a small business owner (and it probably isn’t), I’d quit. I’m especially slothful, and this would work out great. I could stay home with the kids as an “artist,” and we’d make macaroni art all day while pulling in a paycheck. If we made some lifestyle cutbacks, Mr. Zummo could stay home and be an artist too. We could become complete dependent children receiving our government allowance. For many the fear of want is the only thing that keeps them from being total lazy slobs. I suppose there are a few filled with graces who are productive without any accountability, but I certainly am not.

  • “In nations where the gov’t doesn’t fix their currency to a commodity or another currency, that is, in nations with a sovereign fiat currency, there is no constraint to government spending. The issuer of the currency defines the currency and cannot go bankrupt or default on its obligations.

    So going bankrupt or spending more than it “brings in” is not a reason we can’t have full employment. I also argue that there is nothing inherently wrong with deficits. I argue that they don’t crowd out private spending by raising interest rates (the central bank controls interest rates), they do not burden future generations, and they do not lead to financial ruin or a weak currency.”

    Could you present your arguments for this. I ask because it seems part of the concern both here and in Europe is default on govt. debt.

  • “I suppose there are a few filled with graces who are productive without any accountability, but I certainly am not.”

    No, no! I’d be happy to slave twelve hours a day in the law mines whether I needed the money or not. I’d do it simply for the privilege of seeing justice done and enjoying the warm camraderie of my fellow shar–attorneys. Nothing makes me more joyous than seeing a desk clogged with paperwork, 12 phone calls to return and 3 clients waiting to see me! 🙂

    (Exit Don stage left pursued by men carrying a white garment and wielding a large net.)

  • Donald,

    It’s not really fair to say that government is a parasite. There’s a whole swath of economic literature devoted to explaining the provision of public goods, and why these goods would be underprovided by the private sector. Only the staunchest libertarians would argue against this theory on the grounds that there is no “social optimum” or common good — but we’re Catholics, and we don’t buy that premise. We’re not on board with the idea that social goods are incommensurable.

    When you say that government is merely appropriating funds on one hand and spending them on the other, you’re basically describing all economic exchange. One entity provides income/revenue to another entity in exchage for some good or service. The only way I can think that gov’t transactions differ from private exchange is that taxation is distortionary to prices and introduces deadweight loss — certainly a concern, but hardly enough to call all government transactions parasitic.

    Perhaps part of your concern is that the goods and services provided by gov’t are somewhat amorphous at times and fraught with waste and inefficiency — what kind of service, exactly, is “regulatory compliance,” anyway? And am I getting my money’s worth for it? But that is a different color argument, whether we like what we get in return for our taxes. As a conservative myself, I think that’s a very good argument to have, but it’s not the same as saying that government is a parasite.

  • Back on the topic of MMT (by way of the employer of last resort issue), perhaps Alex can explain why seigniorage is not inflationary in his view? There are basically three ways government can raise revenues: taxes, debt, or printing money. The first two don’t seem to add to the money supply (unless investors acquire government debt through their own borrowed funds created by banks? And my knowledge of the Fed here is also lacking — doesn’t it create reserves to buy back government debt?), but printing money clearly does.

  • “It’s not really fair to say that government is a parasite.”

    It is far more than fair, it is accurate. Government produces no wealth of its own but lives off the wealth that it confiscates by law from others. I did not argue that nothing done by government is useful. Just as there are useful parasites in nature, government, when kept at a minimal level, provides useful functions, most notably defense, law enforcement and a legal system for resolving civil and criminal disputes. When government, like parasites in nature, grows too large, and I think clearly government is far too large today in the US and all other Western countries, it can harm the health of the host and even kill it.

  • Government produces no wealth of its own but lives off the wealth that it confiscates by law from others.

    I think the question here hinges on what one means by “producing wealth”.

    I think I’d be basically ready to get behind a definition along the lines of, “You produce wealth when you produce some good or provide some service which others are willing to assign value to — the amount of wealth you produce being equivalent to the value which is assigned to it.”

    In this sense, I think one would have to say that government does produce some wealth, in that it provides some goods and services (road building, policing, defense, etc.) that people would willingly pay for if it were not being provided to them already.

    Now, since the government is funded through non-voluntary payments, I’d argue the prices are set poorly — it may not have the right incentives in place to do only the amount of road building that people actually want, and to deliver it at the prices that people would consider worth paying if there were an actual price mechanism in place. But in that many of the services government usually provides would exist (though in some other form) as private, paid services if government were not providing them, I think we’d have to say it produces some value.

    (Of course, in your analogy, so does a beneficial parasite, so that doesn’t necessarily rebut the parasite analogy.)

  • What’s your definition of wealth? If you mean that the government doesn’t own factories that manufacture and sell products, then you’re right – it doesn’t do this (thank goodness!). But the “wealth” of the nation is measured by other real goods and services, and I would argue that the government – by marshalling the resources to produce public goods that the private sector will not provide or will provide insufficiently — does add to that wealth. Often these goods are not easily marketable, which is why we have gov’t provide them in the first place. Milton Friedman and others have suggested innovative ways to get the government out of all kinds of businesses, but the fact remains that the government still *is* in the business of providing many things, whether we like it or not.

    The goods you mention – national defense, law enforcement, and a legal system – are the typical ones that even a libertarian would agree to, but the question one should ask is, What are the attributes of those goods that make them prime targets for public rather than private provision? And the next question is, Aren’t some of those attributes inherent in other goods and services currently provided by the government?

  • An easy way to look at it Darwin is simply to ask most people to compute all of the taxes they pay each year: income tax, social security tax, medicare tax, property tax, local taxes. sales tax, taxes on utility bills, use taxes, government “fees”, etc . Then ask them if this were a voluntary transaction would they pay this amount for the services they receive. I suspect that in most cases the response would range the gamut from “No!” to “Hell No!”. The essential functions of government, Defense, Law Enforcement and the Legal System, involve only a fraction of current governmental expenditures. I am no libertarian that believes that we can dispense with government entirely, but for far too long we have lived at the other end of the exteme in regard to the role of the economy, and we have the bankrupt governments to show for it. In regard to wealth, every cent that the government uses to perform its functions, other than the rental or sale of property own by the government, comes from the private sector either directly through taxes, or indirectly, to give value to money conjured out of thin air. I think that is clearly a parasitical relationship between government and the private sector. The task for us all is to keep the host healthy and the parasite overall beneficial to the host, and I don’t think we can make either statement today.

  • Then ask them if this were a voluntary transaction would they pay this amount for the services they receive. I suspect that in most cases the response would range the gamut from “No!” to “Hell No!”

    Of course! This is how private incentives diverge from socially optimal outcomes, and it’s the reason we have gov’t tax and provide goods in the first place. I suspect the baskets passed around the pews don’t do justice to the Church, either.

    There are a couple problems with trying to make some connection between private preferences and the “price” of government services: (1) The value you receive from some government services is by design not equal to what you pay. I’m not a fan of major wealth redistribution, but there has to be some recognition of the fact that, in our history, we have chosen to use government as one way of providing a social safety net. (2) You probably don’t “see” a lot of the things the government provides to you as a citizen. You might only hear about them when they fail to do their job. There are, for example, all kinds of services in the areas of project and risk management that are basically invisible to most taxpayers, yet those services are part and parcel of delivering complex public goods like defense, law enforcement, etc.

  • Government creates wealth. It runs a mail delivery business, transportation businesses (trains and buses), health insurance businesses, annuity business, investment insurance business (AIG), and car manufacture business (GM). You can argue that it shouldn’t do those things and I would agree in most cases but “government doesn’t create wealth” is a meaningless cliche. “The government isn’t good at creating wealth” is closer to the truth.

    Government should do those things which would get done absent transaction costs but don’t. IOW, it produces a more efficient outcome than not doing it but it won’t get done by the private sector solely because of significant transaction costs most likely due to the non-excludable nature of the goods or services. This would include national defense, law enforcement, and roads.

    But that’s all irrelevant since we’re talking about welfare which is inherently inefficient but necessary.

  • Thank you for your comments! I have been very busy, but tomorrow I will have some time to respond.

  • Victor Davis Hanson, “Zero jobs last month — a net change of zero job growth?
    It was just announced that last month’s unemployment is still above 9% — despite the nearly five trillion dollars in Keynesian pump-priming, the near zero interest rates, the expanded unemployment and food stamp support, and the government takeovers and subsidies of businesses. There is a scary sort of deer-in-the-headlights look about Obama and Biden that is quite disturbing. . . . In the last 30 months, the Obama administration has created a psychological landscape that finally just seemed, whether fairly or not, too hostile to most employers to risk new hiring and buying. Each act, in and of itself, was irrelevant. Together they are proving catastrophic and doing the near impossible of turning a brief recovery into another recession. . . . Highly publicized visits to bankrupt subsidized green plants, blaming George Bush, new racially-driven invective from some congresspeople against the Tea Party, sermons about the sensitivities of illegal aliens, politically-correct tutorials about Islam — all that might rally the base or in isolation be understandable, but again fairly or not, such liberal rhetoric simply adds to the problem from yet another dimension: confirming perceptions that employers are about the last people in the world that this administration is worried about.”

    They are confiscating $25 billion (giving it to ACORN clones for campaign support) from mortgage servicers based on the robo-signing witch hunt.

    They are now suing big banks for making mortgages when the government policy was “everyone should own their home.”

    Obamacare costs – how much per worker?

    Dodd-Frank.

    The Consumer Finance Portection Bureau will stop banks from pounding on working class Americans and virtuously force them to their knees.

    The regime’s war against coal and electric generating utilities.

    Drilling bans and moratoria.
    […]

    etc.

    Four more years of that and there could well be mass starvation and cannibalism.

  • Donald – I think I understand what you mean by parasite. I guess what I’m saying is that gov’t spending creates wealth in the private sector that the private sector wouldn’t create by itself. That is, by spending it employs people and capital to produce something that would otherwise be unemployed or unused in the private sector. Gov’t doesn’t really ‘crowd out’ the private sector until full employment.

    I don’t mind lowering taxes as a means to increase employment, but it won’t provide full employment without inflation. It will only move us toward a lower unemployment level without inducing accelerating inflation.

    I also disagree with Milton in many ways, but that is another matter.

    RR – I agree. My desire for employment over unemployment insurance is based on the Church’s teaching about the dignity of work. I recommend Laborem Exercens if you are unfamiliar with what I mean.

    Micha – I don’t understand the reference. I don’t support prisons or workhouses. That is not a part of this proposal.

    T. Shaw – I don’t appreciate your condescending argument. I don’t doubt the things Obama has done has eliminated some jobs. I also don’t doubt that what he has done has added some jobs. I am looking at big picture here and NOT at other policies. Neither Obama nor Bush are to blame for our economic woes.

    Mrs. Zummo – I agree, there needs to be accountability. My proposal is for there to be some accountability, that is, administrators of the program will need to be able to discipline or fire if necessary with conditions places on rehiring. There are no doubt going to be people who are looking to take advantage of the program just like people try to take advantage of other welfare programs and just like people try to take advantage of their situations in the private sector. It is our job as Christians to change their hearts and minds. I’m hoping that guaranteeing a job will help many individuals escape their circle of poverty and help them develop as a person.

    Phillip – I recommend reading elsewhere for more in depth arguments on why governments sovereign in their own currency cannot default on their debt. The basic idea is that a government who controls its own currency can’t default. If they go crazy spending without taxing, inflation will likely be problem but not insolvency. European Union members are not sovereign in their own currency, they gave up that ability by adopting the Euro. They are similar to State and local governments in the US. In both of these cases, the governments can default on their payments, because they do not issue their own currency. I recommend http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf, fraud #1.

    J. Christian – Those are good questions. Seignorage typically is inflationary. Gov’t spending isn’t constrained by tax revenue or bond sales. Deficit spending, all else equal, tends to be inflationary. Rising unemployment and underutilization of capital is deflationary. Taxes take away from the money supply. Bonds are used by the Fed for interest rate management. They drain reserves from the private sector, also decreasing the money supply. The transactions between the Fed and the Treasury are tricky accounting, I recommend going elsewhere for better explanations, as my knowledge here is also lacking.
    Maybe here: Stephanie Bell, “Do Taxes and Bonds Finance Government Spending?”, Journal of Economic Issues, Sept 2000

    So yes, ‘printing dollars’ tends to be inflationary, but in an economy of widespread unemployment and underutilization, it won’t be. So far deficits have managed to fight off deflation, but note that despite large deficits, bond interest rates are at an all-time low and inflation is very low. Japan has been a great example of the same thing.

    The ELR policy is designed to let deficits float so as to increase in a deflationary economic climate, and decrease in an inflationary economic climate. Fixing the price of low-skilled labor will help to stabilize prices as well (much like the gold standard…the major difference is that labor is a much more important ‘commodity’ than gold in our economy).

    DarwinCatholic – Part of what causes inflation is the government paying for goods and services at the “market price” from businesses that continue to raise prices because they know they’ll have a contract from the government and also because the government buys too much in some cases and too little in others. This contributes to inflation. Pegging an important price will help to stabilize this problem.

    I also think that gov’t spending allocates resources toward providing things that wouldn’t be provided by the private sector (or at least not enough of the good or service provided to enough of the people). If it were provided by the private sector at a price that allowed enough of the people to use it so that it was deemed ‘socially optimal’ than the gov’t would have no need of stepping in. I recognize that doesn’t stop them from stepping in, but I don’t think that much of what the gov’t provides through its spending would be deemed socially optimal if the private sector were the sole provider.

    Donald – The federal gov’t cannot go bankrupt, unless they voluntarily declare it.

    J. Christian – I agree completely.

    RR – I agree. This program isn’t meant to be welfare, however. It is meant to provide full employment and impart some price stability on the economy, which in addition to helping our overall economy has the added benefit (and perhaps more important benefit) of allowing individuals to develop as persons by providing for themselves and their families and growing in virtue.

    T. Shaw – I agree somewhat. A lot of what Obama has said and done has been unhelpful. I don’t think he or Bush are completely to blame for our economic woes, but Obama and Congress can do something. They can recognize that the federal government can’t go bankrupt, that inflation isn’t a problem in an economy of widespread underutilization, and can therefore increase deficits which add to private sector wealth which stimulates the economy and adds jobs. It does matter how those deficits are spent. They need to be given to the private sector to be spent and not saved. If people choose to draw down their private debt which seems rational, it won’t help the economy in the short run and therefore may actually hurt their long-run prospects via the paradox of thrift.

    This proposal will take some time to implement and would not be an immediate fix, but would be a long term help to our economy. For immediate help I recommend a payroll tax holiday for both employers and employees and a large amount of stimulus sent to the state governments to prevent cuts in police, fire, education, etc.

    It doesn’t seem like Keynesian prime pumping has worked because it really wasn’t big enough. Proof is the lack of recovery with simultaneously low inflation and historically low interest rates. If there were no recovery but inflation and interest rates were high, then Keynesian pump priming would be proven to be unsuccessful. EU nations can’t engage in Keynesian stimulus because they don’t issue their own currency.

    I appreciate all your comments. I would prefer that the debate be about the program and not about government in general. I think most can agree there is a role for government in our society, I’d like to debate about whether one of those roles should be as an employer of last resort. I am happy to debate it among so many Catholics and Christians who will not only argue from economic reasoning but who also care about the Church’s social teaching and see a higher purpose for government and economy than simple want/need satisfying.

  • Alex,

    I’m not sure the article you linked is persuasive. Sorry, I’m still not persuaded that your premise that allows unlimited debt is valid.

  • Fair enough, but please don’t misunderstand me. I am not saying that unlimited debt is good, I am simply saying that governments sovereign in their own currency cannot go insolvent. Inflation would certainly be an issue if spending far outpaced receipts. I am saying that we haven’t reached that point yet and that we aren’t anywhere close.

    Perhaps the Modern Money Primer at New Economic Perspectives will help.

  • If government creates no wealth whatsoever, then that paycheck I get twice a month must just be a figment of my deranged imagination, as is all that money I pay for rent, utilities, gas, food, clothing, etc. Funny, but neither my landlord nor any of the merchants and vendors I patronize has ever complained about the fact that I have been propping them up with their recycled tax dollars all these years 🙂

    Seriously, though, instead of claiming that government creates NO wealth or that it is a mere parasite it might be more accurate to say that its ability to create wealth is LIMITED in comparison to that of the private sector.

    Obviously government employees get paid real money (at least for the moment!), support real live families and households, and buy real homes, cars, and other stuff so they have some positive effect on the economy. The question is whether or not the economic benefit their spending generates outweighs the economic “drag” of the taxes required to support their jobs. That answer will vary depending on what kind of jobs are involved, the level of additional taxation or debt required (if any), etc.

  • Confiscation of the wealth produced by others Elaine is not wealth creation and that is how the State pays its bills. (I mean no disrespect to public sector employees, especially since I am not infrequently appointed by courts to represent indigigent individuals and I am then paid by county funds. The system is broken and those who work for the government are just as much victims of it as those who are not.) In Illinois I think the current government of our state is doing its best to vividly demonstrate how government can kill the private sector.

    http://blogs.wttw.com/moreonthestory/2011/05/09/illinois-gets-bad-grade-for-business/

    I thank New York and California from keeping Illinois from being completely at the bottom.

    This is a completely government created disaster. Illinois is a wealthy state, but the feckless policies of our state government have landed us in de facto bankruptcy.

  • Pacem, Alex and Mac,

    Whew!

    “Opinion is not truth.” Plato. “Theory is not reality.” Me.

    Alex, I apologize. I thought you made up that nutty stuff about “modern money theory” (MMT). Google tells me it was dreamt up in the 1920’s.

    I say if it was ever implemented the economy would fall apart by the first sunset. Some blasted fact that we have been working with since the day of creation would rear up and knock it over.

    Anyhow, Krugman’s embarce of MMT may explain why he is a raving lunatic.

    MMT and “income redistribution”: they ought to shut down the entire economist profession.

    “MMT aims to describe and analyze modern economies in which the national currency is fiat money, established and created exclusively by the government. In MMT, money enters circulation through government spending; Taxation is employed to establish the fiat money as currency, giving it value by creating demand for it in the form of a private tax obligation that can only be met using the government’s currency.[2][3] An ongoing tax obligation, in concert with private confidence and acceptance of the currency, maintains its value. Because the government can issue its own currency at will, MMT maintains that the level of taxation relative to government spending (the government’s deficit spending or budget surplus) is in reality a policy tool that regulates inflation and unemployment, and not a means of funding the government’s activities per se.”

    MMT is the statist’s equivalent of winning the Lottery. It works really horridly in Zimbabwe. We better not let them try it here.

    Reality: Even with Federal Reserve Notes, “confidence and acceptance” in the “full faith and credit” are waning as evidenced by gold is now worth over $1,900 worthless Federal Reserve Notes an ounce. And, 20% of t we the people can’t find work.

    Bastiat:

    “When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it.”

    “Taxes must, in the end, fall upon the consumer”

    “The state is the great fictitious entity by which everyone seeks to live at the expense of everyone else.”

    “Government is not reason; it is not eloquence; it is force; like fire, it is a dangerous servant and a fearful master.” George Washington, Farewell Address

  • So the USPS “confiscates” wealth while UPS, what, merely requests it? When I get on a NYC bus my money is stolen but when I get on Greyhound it’s voluntarily handed over?

  • Alex, I mentioned the dignity of work when I proposed a similar program on this blog before. Some responded that there isn’t much dignity in picking up trash.

  • “So the USPS “confiscates” wealth while UPS, what, merely requests it? When I get on a NYC bus my money is stolen but when I get on Greyhound it’s voluntarily handed over?”

    The USPS is a government monopoly RR that is going broke. I can think of no better symbol for the parasite state’s futile efforts to foster a pretend “independent” business than the USPS.

  • RR — I’d love to read your proposal. Do you have a link?

    I think there can be dignity in picking up trash. It doesn’t seem like very pleasant work, but it does clean up our environment. I’d say it depends on how the worker was treated on whether or not he/she received dignity from such work. Do we as a society treat them as trash because they pick up trash, or do we thank them for doing work that seems quite undesirable to us?

    I think the degradation of work comes from people more often than it comes from the actual work being done.

  • T. Shaw — No, I didn’t make it up, but I don’t think it’s nutty either. You misunderstand it, and it sounds as if you do it almost deliberately.

    MMT is a description of money from a balance sheet accounting perspective, not a way to use gov’t finance. Zimbabwe didn’t “use” MMT, but the way they spent and taxed can be explained by MMT and their hyperinflation easily predicted by MMT. Understanding MMT doesn’t automatically lead to Zimbabwe. In fact, understanding it would lead to greater price stability and economic prosperity because you would understand that deficits DO matter, that is, the level of spending and the level of taxation DOES matter for determining the value of the currency. Zimbabwe had very little tax enforcement, as did the Confederacy. Their inability to enforce tax payments coupled with their spending levels led to their hyperinflations.

    Krugman doesn’t embrace MMT. I don’t know where you get that from, he’s clearly rejected several times now.

    Flight to gold often happens in recessions because people think its ‘safe’. Flight to US Bonds has also happened. Do you think that would happen if we were heading toward Zimbabwe?

    So we don’t “implement” or “use” MMT. MMT describes what is already happening. If you take it seriously then you would see that we need higher deficits right now, not a balanced budget. This isn’t a pro-big gov’t stance, it’s reality. The gov’t defines our currency, our money. We can vote and demand from our representatives what we want gov’t to do in our society. We can have a smaller gov’t or a larger gov’t and still be described accurately by MMT. If you want a smaller gov’t, great! But don’t expect things to turn around if you want to get there by balancing the budget.

  • Alex, my idea was basically identical to yours without the economic arguments. I accounted for household size but I think your idea to have a flat wage and take care of household size independently is probably a better idea.

    Sure, picking up trash SHOULD be dignified work, but society doesn’t view it as such. Given reality, can it still be said to be dignified?

  • Alex,

    “Zimbabwe had very little tax enforcement, as did the Confederacy.” Does that mean when Jeff Davis and President for Life Mugabe ordered the mints to print C$15 billion and Z$86 quadrillion, respectively, they forgot to order the CIRS and ZIRS to collect suffucient proportional taxes of the C$15 billion and Z$86 quadrillion to make MMT function efficiently in the CSA or Zimbabwe?

    Try these quotes.

    Head of Deutsche Bank, “It is an open secret that numerous European banks would not survive having to revalue sovereign debt held on the banking book at market levels.” PS: US banks had a similar poblem with LDC debt in the early 1980’s. “There is nothing new under the Sun. ‘

    ZeroHedge:
    The cost of a weak country leaving the Euro is significant. Consequences include sovereign default, corporate default, collapse of the banking system and collapse of international trade. There is little prospect of devaluation offering much assistance. We estimate that a weak Euro country leaving the Euro would incur a cost of around EUR9,500 to EUR11,500 per person in the exiting country during the first year. That cost would then probably amount to EUR3,000 to EUR4,000 per person per year over subsequent years. That equates to a range of 40% to 50% of GDP in the first year.

    Walter Russell Mead: “An economic crisis is nature’s revenge on those who make and those who accept false promises; it is a holocaust of lies when the dross is burned away and only what is real and true remains. Think of cotton candy melting and charring in the flame of a blowtorch; that is what is happening to the secure retirements that ‘caring’ blue politicians and ‘committed’ blue union leaders promised gullible (Rhode Island) state workers.”

  • T. Shaw — I don’t know what the leaders of Zimbabwe thought would happen, but I am saying that those who understand MMT would have known that printing and spending so much gov’t currency would lead to inflation if it wasn’t backed by a sufficient tax increase.

    Quotes from famous people aren’t good arguments in and of themselves.

    European Union members who adopted the Euro gave up their ability to issue their own currency thereby making it possible to default in the Euro–they may actually “run out” of Euros. Note that the UK and Switzerland don’t have this scare because they kept their currency.

    I actually agree that economic crises are somehwat a result of making and accepting false promises, e.g., the enormous buildups of private debt that stimulate bubbles and financial crises. I don’t know enough about Rhode Island politics to say whether the promise made was good or bad or held up, but that is beside the point (note that U.S. states are like EU members in that they use another institution’s currency and don’t issue their own). What does it have to do with this debate?

    Your knowledge of quotes is fairly extensive, I am impressed. Try reading and learning more about money and the history of money and you will see that what I’m saying is not madness, but is, in fact, quite likely very true.

  • RR — I guess I have hope that it can. Whether it is or ever will be dignified, I do not know. Maybe if more of us spread the word that such work can be dignified our society will see it a different way. Our society once thought slavery was necessary and morally acceptable.

  • Alex,

    I misspent the past 34 years working in the banking system. In that time, I’ve seen good times and bad. I dealt with (hands on) the financial and credit solutions to the “lesser developed countries” debt crisis; the Ag and energy crises of the early 1980’s; the S&L crisis (the FHLBB magnified that massive national loss/fustercluck about 2000%); the 1990’s Com’l RE crises; and in 2005 I saw coming this housing bubble/bust.

    You have a question, I will answer it.

    You do understand this unnecessary hell/housing bubble burst in 2007. It’s 2011 and the idiots that run the Fed and Congress are nowhere near achieving a housing recovery after four years. My associates and I saw it coming. No one listened. They were making too much money, BUT no wealth was created. Plus, the ratio of housing prices to disposal income (in the USAF they called that trajectory “going ballistic”) was a (800 lb gorilla in the room) clue that no one wanted to see.

    I know who invented the gold standard, and why it was required.

    I know how money is created: I do not mean printed ala Monopoly Money. Plus, there is, believe it or not a velocity of, or turnover of, money that can be accelerated or decelerated.

    Economic growth and development are principally/simply based on fostering physical resources, (educated, trained, virtuous) labor and capital/entrepreneurship. This regime is at war with (what it views as) the evil, unjust private sector. This country, and especially its so-called leaders, suffer from surpluses of vice and deficits of virtue.

    PS: Believe it or not, I have a BA in economics.

2 Responses to Chart of the Day: Spending Spree

Explaining the Money Facts of Life to Liberals

Friday, July 29, AD 2011

I take off my hat to you Klavan on the Culture for making the effort, but it will take more than that to get through to people who believe that infinite wealth can be produced by government fiat.  Exhibit A is a plan to solve the national debt, read all about it here, which is quite popular among the people who call themselves “the reality-based community”.   Pixies, unicorn dust, Obama is a great President and the government is a cornucopia of infinite largesse: many leftists in this country would sooner see us do a replay of the Great Depression than give up such delusions.

 

 

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5 Responses to Explaining the Money Facts of Life to Liberals

  • I have believed for some time that only a crazy person tries to reason with another crazy person. And I would say trying to explain fiscal sanity to leftists (I refuse to call them liberals because there is nothing liberating about their minset) is the posterchild of such insanity.

  • GM: Truth. If the people understood the facts about the non-sustainability of galactic volume of federal spending and its devastating consequences, they would demand “cut, cap and balance on steroids.”

    The dems and the lying leftist media have completely distorted every fact and feature of the issue. The dems cannot cut spending: it pays for votes. They only have tax rate increases, which will not be enough to offset long-term, high unemployment and unsatisfactorily slow GDP growth. All Obama, the senate, and the left-wing media (all but FOXNEWS) have are demonize, lie and polarize.

    Many people are aware. Sadly, probably not enough to save the country.

    Pray for the best. Prepare for the worst.

  • Liberals, leftists or whatever one calls them, believe in their Messiah, Obama – that he can do anything and nothing shall dissuade them of that belief. I have seen otherwise very intelligent and knowledgeable engineers and scientists, some working in the nuclear energy field, who are under his sway and refuse to listen any evidence to the contrary.

  • T. Shaw yes, if people who are honest and sane would demand CCB on steroids, which in fact much of the American public is. However, I was talking about leftists. Leftists don’t care.

  • I can’t decide which is their most common trait. I’ve narrowed it down to dishonesty or hatred.

    You cannot negotiate with ideologues. Here’s their, Alinskyite definition of compromise: “My way or no way!” All they do is demonize, lie, and polarize.

    This time, the House again needs to send the senate CCB. And, when the reds table that, send them CCB-squared.

    Gallup Poll: Obama approval – 40% (34% Independents); Disapprove – 50%.

    There are many mysteries in life. Someone listed a few on Instapundit the other day. “Why did kamikaze pilots wear helmets? Why are there no ‘B’ batteries? Who would pay to see a Fat Michael Moore movie? Why is the GOP afraid to call Obama’s bluff?”

A Foundation of Determinism

Monday, July 18, AD 2011

Paul Krugman recently did a Five Books interview with The Browser, talking about his five favorite books. The books are: Asimov’s Foundation series, Hume’s An Enquiry Concerning Human Understanding, two books by Lord Keynes, and a book of essays by economist James Tobin, one of Krugman’s old teachers. Of Foundation he says:

This is a very unusual set of novels from Isaac Asimov, but a classic. It’s not about gadgets. Although it’s supposed to be about a galactic civilisation, the technology is virtually invisible and it’s not about space battles or anything like that. The story is about these people, psychohistorians, who are mathematical social scientists and have a theory about how society works. The theory tells them that the galactic empire is failing, and they then use that knowledge to save civilisation. It’s a great image. I was probably 16 when I read it and I thought, “I want to be one of those guys!” Unfortunately we don’t have anything like that and economics is the closest I could get.

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9 Responses to A Foundation of Determinism

  • I read the original Foundation trilogy and found them fascinating. Following the fall and rise of a civilization a la Gibbon was an intellectual treat. The idea of mathematics being able to predict history struck me as complete hokum. The only thing Hari Seldon and his followers couldn’t predict was the appearance on the scene of a mutant nicknamed The Mule. Asimov wrote quite a few histories for a general audience and they weren’t bad reading, but they were all flawed because Asimov the atheist had a tin ear in regard to religion. This was on full display during the “Dark Ages” portion of the Foundation trilogy when Seldon’s followers start up a fake religion to help guide the course of human history.

    “The religion– which the Foundation has fostered and encouraged, mind you– is built on strictly authoritarian lines. The priesthood has sole control of the instruments of science we have given Anacreon, but they’ve learned to handle these tools only empirically. They believe in this religion entirely and in the …oh…spiritual value of the power they handle…The Foundation has fostered this delusion assiduously (pp. 106-107).

    I started that way at first because the barbarians looked upon our science as a sort of magical sorcery, and it was easiest to get them to accept it on that basis. The priesthood built itself and if we help it along we are only following the line of least resistance (p. 86).

    To the people of Anacreon he was high priest, representative of that foundation which, to those ‘barbarians’ was the acme of mystery and the physical center of this religion they had created– with Hardin’s help– in the last three decades (p. 89).”

    When it came to religion Asimov had as much insight as a blind man trying to explain his favorite color.

  • I think of “determinism” in a technical sense, meaning not random. Not having the read the novels, do the psychohistorians have a mastery of probability to the point that their equations can account for outcomes drawn from a probability distribution?

    It sounds like Krugman has not matured beyond the undergrad economics honeymoon stage. A lot of economists exhibit stunted growth in the wisdom department.

  • I did not read the novels.

    Apropos to today’s developing economic/political cataclysms is the blind faith of geniuses in elitist control over everything and everybody.

    Old Druidic (I just made up) proverb:

    “Never misunderestimate the insensibility of congressmen, credentialed eggheads without real world experience, Fed Chairmen, Fed Open Market Ops Committees, and presidents.”

  • Not having the read the novels, do the psychohistorians have a mastery of probability to the point that their equations can account for outcomes drawn from a probability distribution?

    This is where the fact that I knew less about statistics at the time I read the novels and that it’s been a while will come into play, but there was a lot of hand-waving on this. Overall, the idea was that given that the Galactic Empire involved so many people, it was highly subject to statistical predictability, such that the psychohistorians could predict when it would fall, how, where the strongholds would be, where invasions would come from, how things would start to come back, etc.

    To add to the silliness, the “one thing they couldn’t predict” was an interruption in their plans by a warlord of sorts names The Mule, who could not be predicted by their calculation because he was a genetic mutant (somewhat deformed) and thus could not be calculated by their statistical models.

  • Krugman isn’t the only economist to be inspired by the Foundation series. Hal Varien (chief economist for Google) apparently read the book in high school and had exactly the same reaction.

    Personally I found the whole idea of pyschohistory so self-evidently absurd that I couldn’t really get into the book. I’d like to think that if only I’d been a little better at suspending disbelief I’d have become a world famous economist like Krugman or Varian. I’d like to think that.

  • Interesting. I really liked the books too, and went on to get a degree in economics. The connection never occurred to me. I’ll give Krugman this – he’s got to have some real self-awareness to have made that connection.

    But a person won’t get too far in studying economics (shouldn’t get too far…) before noticing the wiggle room built into all the equations. People’s choices are based on their preferences, and while economists can note them, they can’t predict them. There’s a catch-all term that economists sometimes use, “fads and fashions”, which refers to the fact that some element of human behavior is unpredictable. You can aggregate across individuals and get something like a consistent pattern, but there’s always going to be women’s soccer or ciabatta bread or something that wasn’t predicted, not because there was a lack of accurate data, but because human behavior depends on the wills of individuals.

  • I find the idea of Paul Krugman commenting on David Hume disturbing.

  • I enjoyed reading the Foudation! It’s great fiction! Like all science fiction you have to suspend beieif or disbelief in somtiing for the plot to work like the possibilty of realtime intersteller travel with only minor improvements in current technology. The amazing thing about the series, and any thing else Asimov wrote on politcs or econmics, was that real time star travel required much less suspension of belief than the political and economic process of his novels.

  • Krugman’s desire to be “one of those guys” shouldn’t tarnish the idea that a science of “psychohistory” might be possible.

    I prefer Michael F. Flynn’s “Country of the Blind” in which various groups independently invent “cliology”. Some are interventionist, trying to mold events to their ends, others have ceased doing so because their models aree too imprecise and their meddling has caused unforeseen “blowback”.
    Flynn, who is Catholic, goes to some lengths about free-will implications.

Moral Sense and Unequal Exchange

Wednesday, June 22, AD 2011

Every week I make a point of finding the time to listen to the EconTalk podcast — a one hour interview on some economics related topic conducted by Prof. Russ Roberts of George Mason university. Roberts himself has economic and political views I’m often (though not always) in sympathy with, but he’s a very fair and thoughtful interviewer and has a wide range of guests. This week’s interview was with a semi-regular on the show, Prof Mike Munger of Duke University, and the topic was the concept of euvoluntary exchange which Munger has been attempting to create.

Munger’s project aims to identify why it is that some seemingly voluntary transactions are seen as morally repugnant by most people, and are either socially disapproved of or outright outlawed. So for example, say that Frank is very poor and desperately wants to provide for his family. Tom is very rich and is loosing eyesight in both his eyes. His doctor believes they can pull off a revolutionary new surgery and transplant a healthy eye into him, but they need the eye of a live, healthy person who matches Tom’s blood type and DNA well. Frank is a match and is willing to give up an eye in return for a million dollars.

Now, there are a few people who lean heavily in the rationalistic direction who would say this sounds like a great idea because it makes most people better off, but most people would react to this with revulsion, and it is in fact illegal to do this kind of thing in the US.

The interesting thing is that voluntarily donating an organ (so long as giving it up isn’t considered too big a detriment to you) is considered morally admirable, and is legal. So, for instance, there was a case a year or two ago in our parish where one young woman in the parish donated a kidney to another parishioner who needed a transplant.

Munger’s argument is that in the Frank and Tom example, the transaction may seem voluntary but it’s not really voluntary because of the disparity in means between Tom and Frank.

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17 Responses to Moral Sense and Unequal Exchange

  • DC,

    Very good blog posting. Informative and interesting.

    –Jonathan

  • Excellent post, Darwin. Much food for thought. I would suggest that perhaps what is morally permissible and what is morally admirable are two different things. While charity is admirable, it is not required that we give all resources beyond basic needs to the poor — though that would certainly be admirable. I sense that this understanding might contribute to the analysis, though I’m not sure. Perhaps I’ll add more later.

  • Very enlightening. So in Catholic terms, the works of mercy are ways of eliminating non-euvoluntary choices by increasing the BATNA.

  • You seem to be “mixing apples and oranges”, i.e., morals and economics.

    My understanding: economics is the study of the allocations of relatively scarce supplies/resources among relatively unlimited demands/wants. Price is the allocation mechanism. When morals, philosophy, theology, governmental interventions, etc. are applied, economics no longer is the driver.

    Then, what may be the unintended consequences?

    It is likely the recent US financial collapse was magnified by Federal interventions aimed at more widespread home ownership, and concomitant politically motivated “pro-borrower” and “pro-homeowner” policies.

    Contrast that with Canada’s banking system that has consistently promoted responsible borrowing and prudent lending and underwriting practices with little politically motivated interference, while the U.S. banking system seems to have been encouraged to pursue excessive lending risks to “low to moderate income” borrowers because of a political obsession with home ownership.

    N.B., The Canadian government takes responsibility for “affordable housing.”

  • While Prof. Munger may be onto something with his euvoluntary idea, his BATNA criterion is clearly wrong.

    Take the example of the guy who wants to sell me water for $1000 when I am dying of thirst in the desert A transaction is not euvoluntary if the disparity in BATNAs is too great. Suppose, though, that the guy says “hey, you’re our 1000th customer, so you get a bottle of water on the house!” In that case the disparity in BATNAs is even greater than if he charged me $1000. On the other hand, the more he charges for the water, the less disparity in BATNAs there will be.

    Additionally, I don’t think it’s right to say, as Munger does, that if a transaction is euvoluntary then it is necessarily just. In the case of organ donations, for example, you can’t pay for a kidney even if the person you pay has the same standard of living as you do, and I don’t believe you would be allowed to make a live donation of your eyes even if no money was involved.

  • Here’s another interesting wrinkle. In Prof. Roberts example, he is very uncomfortable about the fact that the place he was house-sitting for in Chile had a cook who was supposed to make him dinner. Suppose, though, that instead of house-sitting he had been put up in a hotel and part of his hotel room was free meals at the hotel restaurant. I suspect that Prof. Roberts would not have been uncomfortable at the thought he was being cooked for in that situation, even if the pay for the cooks in the two cases was the same

  • Isn’t this kind of why charging interest use to be a no-no, but it’s not these days? IIRC, the rule is from when you only borrowed if your life/family/serious well-being depended on it, and now borrowing is a simple economic tool or to make things easy?

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  • T Shaw,

    I would agree with you that economics is really only able to look at how systems work, while ethics and morality are used to examine whether some action is moral or not. Munger is clearly doing some kind of ethics or philosophy here, not economics, in trying to determine what sort of transactions are ethical.

    And as such, I’m not sure he’s entirely successful, in that I’m not sure that the inequality he talks about makes an action moral or immoral, though I think he has a very interesting observational point in that clearly a lot of people feel that this kind of inequality makes these actions immoral.

    Blackadder,

    While Prof. Munger may be onto something with his euvoluntary idea, his BATNA criterion is clearly wrong.

    Take the example of the guy who wants to sell me water for $1000 when I am dying of thirst in the desert A transaction is not euvoluntary if the disparity in BATNAs is too great. Suppose, though, that the guy says “hey, you’re our 1000th customer, so you get a bottle of water on the house!” In that case the disparity in BATNAs is even greater than if he charged me $1000. On the other hand, the more he charges for the water, the less disparity in BATNAs there will be.

    I may be misunderstanding this, but I was taking his assessment of BATNA to be a question of “how much worse does my situation get, compared to the current state, if no transaction takes place.”

    In that situation, the guy in the desert is going to die if he doesn’t get water, so things get much worse for him if he doesn’t get the bottle of water, no matter what the price. For the guy in the Jeep, he’s in exactly the same situation as before if he doesn’t make the sale — he doesn’t have the extra money that would come from price gouging, but he does still have the water, the Jeep, and one assumes a way to get out of the desert.

    If I’m right on this, I think Munger would say that the BATNA is the same regardless of the price charged for the water — but that because the disparity in BATNA is so high, we only feel morally comfortable with the water being given for free or for a “fair” price, not with a high price.

    Additionally, I don’t think it’s right to say, as Munger does, that if a transaction is euvoluntary then it is necessarily just.

    I would agree with you there. One can maybe gloss over it a bit by making a proviso that the parties to the transaction have to have rightly ordered desires, and thus ruling out anything that seems wrong as being not really voluntary because a rightly ordered person wouldn’t want it, but at that point one has just invalidated the whole line of argument.

    The one I thought of was: What if a person honestly wants to commit suicide, and he meets a big game hunter who has always wanted to try hunting a human — so they come to a deal whereby the hunter will give a large sum of money to the suicide’s family in return for being able to kill him. No matter how honestly both parties claimed to be acting freely, and how similar their social station, I don’t think many people would see this as a just transaction. (Though I suppose one could also try to bracket by saying the transaction is just, it’s just that it’s an unjust thing being bought.)

  • BA,

    Here’s another interesting wrinkle. In Prof. Roberts example, he is very uncomfortable about the fact that the place he was house-sitting for in Chile had a cook who was supposed to make him dinner. Suppose, though, that instead of house-sitting he had been put up in a hotel and part of his hotel room was free meals at the hotel restaurant. I suspect that Prof. Roberts would not have been uncomfortable at the thought he was being cooked for in that situation, even if the pay for the cooks in the two cases was the same

    Yeah, you’re right, there’s clearly a sense of directness that is causing the discomfort here. The student probably also wouldn’t have got upset if her hosts had said, “I’ll get your laundry washed for you by the woman who does our laundry,” and then paid the laundry lady the same amount.

    Though there are people who get worried about indirect transactions. For instance, I knew a couple of very earnest women who refused to buy any clothes labeled as being made in certain countries because they were worried that the workers in those countries might not be being paid enough.

  • I may not be getting this at all, but I’ll add my 2 cents.
    This is a question of will and of sin. I need to engage my will in a sin in order for a sin to take place. The house-sitter and the washing customer are only willing to carry on normal, innocuous activities. Their participation in exploitation is too remote to register prudentially. They do not match the (hypothetical) man who will not love his brother enough to give him a cup of water–the Levite wills not to love.
    Economic measures derive from our culture which is based on (Christian) truth. Where we would sin by withholding aid or solace (like the Levite who passes by the robbery victim) our culture strives, by various means including economic theories generated by it, to alert us and cause us to avoid it.
    It seems to me that the gal with the dirty laundry and the house-sitter are evincing scruples foisted on them by materialist liberalism.

  • Darwin,

    The BATNA doesn’t change depending on the price of the water. However, according to Munger’s criterion, what matters is not the BATNA per se, but the *disparity* between the BATNA and the transaction.

    For example, suppose we say that not dying is worth a million dollars to me (purely for purposes of illustration, mind you). If I have to pay $1 for the water, the disparity between the transaction and my BATNA is $999,999. If I have to pay $1000, the disparity is $999,000. If I have to pay $100,000, the disparity is $900,000, and so on. The more I have to pay, the less the disparity between than transaction and my BATNA.

    Or take the sweatshop example. The more you pay the sweatshop workers, the greater the disparity between their sweatshop job and their BATNA. In fact, if you their wages are low enough, then the disparity between their BATNA and the sweatshop job won’t be big at all. So the implication here is that the less you pay sweatshop workers, the closer sweatshop jobs come to being euvolunary. Which is clearly not an accurate description of how anti-sweatshop people think.

  • The BATNA doesn’t change depending on the price of the water. However, according to Munger’s criterion, what matters is not the BATNA per se, but the *disparity* between the BATNA and the transaction.

    Hmmm. I guess what I had taken Munger to be arguing (and what I think I said above, unless I mis-spoke) that he takes it to be a problem (a lack of euvoluntariness) to have a financial transaction in which there is a large disparity in the BATNAs of the two parties in the transaction.

    If your reading is correct, then yeah, his claim is totally incoherent and doesn’t even apply to his examples.

  • What if a person honestly wants to commit suicide, and he meets a big game hunter who has always wanted to try hunting a human — so they come to a deal whereby the hunter will give a large sum of money

    There are times when I am quite pleased I stayed out of philosophy classes.

  • You and me both Art! Whenever I despair over the maddening hairsplitting of the Law, I read some philosophy and I am consoled by the comparison!

  • Heh, fair enough. I’ll admit, that one comes pretty close to the “trolley-ology” that I despise. I just wanted to make the point that unless one is some kind of total relativist, one can’t claim that involuntariness is enough in and of itself to make an action just. 🙂

  • Art- Just the kinda stuff that folks come up with when they try to apply scientific method to right and wrong.

    Guessing everyone here has heard the shocking numbers of college students that would save their own dog before they’d save someone they don’t know when both are drowning in a river?

Increasing Inequality and Winner-Take-All Economics

Friday, June 3, AD 2011

One of the mildly worrying economic trends of the last thirty years has been the increasing gap between rich and poor in the US. Many policy analysts conclude that this is the clear result of not following whatever policies they advocate, and thus demand quick action. However, as a recent OECD study shows, most countries have seen increases in inequality since 1980:

Given that countries as varied as Israel, Germany, New Zealand, Sweden and Finland have all seen increases in inequality of similar or greater scale (though not to the same absolute level, since they started lower) to that of the US over the last 30 years, it seems hard to imagine that it is simply a matter of US tax or social safety net policy which is the cause of the trend.

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2 Responses to Increasing Inequality and Winner-Take-All Economics

  • Very few people are successful entrepreneurs in export industries, so one might posit that that phenomenon would influence a observation of the most affluent 2% or so or the wealthiest 2% or so having an improved position vis-a-vis the remainder, but not any observed improvement in the relative position of salaried workers (bar the corporate elite) over wage-earners.

    Couple of alternative hypotheses:

    1. Assortive mating. About a third of the labor force in 1957 was female. One might suppose that married women working in 1957 were intensely concentrated among impecunious wage-earning families and doing a good deal of shift work. The relationship between social stratum and women’s working hours now has cross-cutting influences and is not straightforward, with a great many married women in professional- managerial posts where you saw only a few spinsters 50-odd years ago.

    2. Common mindsets arriving accross a range of countries, leading to similar policy shifts (as regards income tax rates, &c.).

  • Very few people are successful entrepreneurs in export industries, so one might posit that that phenomenon would influence a observation of the most affluent 2% or so or the wealthiest 2% or so having an improved position vis-a-vis the remainder, but not any observed improvement in the relative position of salaried workers (bar the corporate elite) over wage-earners.

    Maybe I’m over-extrapolating from personal experience, but it seemed to me that a lesser degree of the same effect might well apply to the whole top 20-30%.

    So, for instance, since hitting a decent salary level and leaving hourly work behind, I spent a number of years working at a consumer electronics company which sourced it’s parts and eventually whole products overseas, and sold in multiple countries, though my segment of the company only sold to North America. I’d tend to assume that resulted in the company as a whole being more profitable, and probably helped drive my salary up in a way that would not have happened without the global supply chain and the IT which allowed me to do analysis or set prices on large numbers of products for the whole continent (and take advantage of the higher price elasticity made possible by the communications medium of the web.)

    Or my current job deals with US sales only — but modern technology allows my role to deal with price optimization for over a thousand stores across hundreds of products, something which software simply didn’t exist fore 30+ years ago.

    So while I and salaried workers who do the type of work that I do for large companies may not be “winners” who take all, scale, global supply chains and technology do certainly make our work very productive compared to what it might have been 30, much less 60, years ago.

    That said, I see a fair amount of explanatory power in your two points as well, particularly 2.

4 Responses to Keynes vs. Hayek, Round Two

Do The Wealthy Pay Their Share?

Monday, April 25, AD 2011

Having linked last week to some discussion on whether the US is really becoming “Of the 1%, by the 1%, for the 1%”, I was struck by this chart, which I saw a link to this morning, over at Carpe Diem, showing top marginal income tax rates versus percentage of income tax paid by the top 1% of earners since 1980.

However, I thought it would be a lot more interesting if the chart showed the percentage of total income earned by the top 1%, and also showed the total federal tax liability (including Social Security and Medicare) rather than the just the income tax. Luckily, all this information is available easily on line. (Percent of taxes paid. Percent of total income. Historical tax tables.)

Here’s the chart I produced with that data:

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6 Responses to Do The Wealthy Pay Their Share?

  • I thought only SS had a cap. Medicare does too?

  • Medicare does not have a cap — but it’s only about a third of what SS withholding is, so the amount of payroll tax on income above the SS cap is pretty low. (I should have been clearer on that.)

  • Employers (small businesses/rich people) match-pay employees’ SS taxes, probably also medicare taxes. Is that in the lines above?

    Here’s a tax where the (evil) wealthy are not paying their share: food/fuel inflation.

    Bastiat: “All taxes ultimately fall on the consumer.”

  • I don’t think 2.9% (Medicare tax) is pretty low. it may be relatively low, as compared to the 12.4% (10.4 in 2011) for so-called social security (OASDI), but it is still substantial. I am using the full amount, employee and employer confiscations, because that is the only honest way to look at it – this is the total cost of confiscation, whether or not it shows up on a paycheck or not.

    That is significant. There is absolutely no moral stance in charging people different rates for any reason. This is blatant discrimination! It is an outrage. It does not respect diversity. It is totally intolerant. it is unfair, unjust and just plain mean. In other words, it is the antithesis of the stated, so-called ‘liberal’ (progressive) dogma.

    When you go to a grocery store do they ask for your citizen identification number, aka SSN? Do the want a disclosure of your income, assets, liabilities, etc.? No. They don’t care. All they want to know is do you have $4 to purchase a gallon of milk or not. They don’t change the price or anything else based on your quintile. They just charge for the milk and if you want to leave with it, they expect the same exact payment they would from anyone else. Fair, non-discriminatory.

    If government is necessary, if it is good, if it is just, then it should cost us all the same. A flat fee, not a percentage.

    Does that mean I think the wealthier should not contribute more to their communities and for the benefit of those less materially fortunate than they? No. But that is Charity and not state taxation.

    So, do the wealthy pay their share? Some pay WAY MORE! Others, through political manipulation, like George Soros and Barack Obama, pay much less than they appropriate. Thieves can be very wealthy and even very poor, either way, they are violating God’s commandment against appropriating someone’s private property.

  • The top 1% of earners pay 40% of Federal income taxes. It seems some believe the top 1% steals 18% of aggreagte national income from undocumented migrants; poor, unwed mothers with three to six half-brothers/sisters who never met any one of their three to six fathers; ex-convicts; et al.

    You may gain graces through charitable (Corporal Works of Mercy) works paid with your money and your time. You may not gain graces by confiscating/taxing someone else’s money and giving it to your dependent voting blocs, sanctimonious Robin Hoods.

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Responding to Stiglitz on Inequality

Tuesday, April 19, AD 2011

There’s a Vanity Fair piece on income inequality by Nobel Price-winning economist Joseph Stiglitz, “Of the 1%, by the 1%, for the 1%”, which has been cited again and again in the commentariat lately, and it’s a frustrating piece because of the extent to which is makes logical leaps or simply distorts reality. Scott Winship of The Empiricist Strikes Back does a good job of going through the piece and addressing it point by point, including taking on a few of the talking points which are increasingly becoming things “everybody knows” in the wonk community but which don’t actually mean what they seem to.

One of the problems with our modern society’s fixation on “data” is that people, even very educated people who should know better, often fixate on a given metric (for example, the claim that “While the top 1 percent have seen their incomes rise 18 percent over the past decade, those in the middle have actually seen their incomes fall. For men with only high-school degrees, the decline has been precipitous—12 percent in the last quarter-century alone.“) without taking the time to dig into what we can discover of the realities that underlie that measure. Sometimes those realities do not fit with the ideological picture which makes the original metric so appealing. (Winship’s responses to the just quoted claim, both in the main article linked above and in this older one, are fascinating.)

Definitely worth a read.

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3 Responses to Responding to Stiglitz on Inequality

  • Wait, the map isn’t the place?

    Amused to see that they did use one of the tricks I expected– bet they use some of the other ones, like counting gross income instead of net with small businesses (by that measure, ag makes BIG bucks, and so do jewelry shops) and not accounting for the effect of single parent families, worker choice, folks being restricted from working (disability, retirement, too young– being paid for not making over X is rolled in here to keep it short) and utterly ignoring the under-the-counter economy. (Illegal aliens, folks barred from working doing cash jobs, etc)

  • (to be clear, haven’t got time to read it as it deserves; wanted to get a comment in so I’ll get comments in my email to remind me)

  • I think it is called “data mining.” Employing data mining one can fabricate “facts” which bear no semblence to the truth, not even the iota found in a lie.

Inequality, Heritability and the American Dream

Tuesday, March 8, AD 2011

Ever since people finished identifying “the American Dream” — the idea that in the US in particular and the New World in general somehow allowed people to escape the hidebound social structures of the Old World and better themselves via their own efforts — people have been worried that it is on the point of dying. Americans continue to show an an unusual degree of belief in the ability those who work hard to better themselves by their own efforts. For instance, in the 1999 International Social Survey, 61% of Americans agreed that “people get rewarded for their effort”, whereas only 41% of Japanese agreed, 33% of British and 23% of French. This belief has actually increased in recent decades. In 2005 the New York Times reported that while in 1983 only about 60% Americans agreed that “It is possible to start out poor, work hard and become rich” by 2005 nearly 80% of Americans agreed with that statement.

And yet, those who study inter-generational income mobility have been increasingly worried in recent decades that despite American’s belief that people can work hard and get ahead, that it is becoming increasingly difficult for people to actually achieve this in the US. In a lengthy report by the liberal think thank Center for American Progress, Tom Hertz of American university brings together a number of the recent studies on intergenerational income mobility in the US as compared to other countries, showing how people who are born into the lower income quartiles in the United States are less likely to reach the top levels of income than in other countries such as Germany, Sweden or Denmark.

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7 Responses to Inequality, Heritability and the American Dream

  • “This may reflect the effects of discrimination in the labor market, but may also result from factors such as the difference in the quality of schooling acquired by blacks and whites. Note also that while we have controlled for a long list of parental personality variables, we have not been able to
    control for that same list among the children. It is thus possible that given ostensibly comparable family backgrounds, African American and white children develop different attitudes towards economic success that are then reflected in their family incomes.”

    This seemed interesting given that mobility for Latinos was not significantly affected by their race. (It would also have been interesting if Asians were included.) One might hypothesize that schools are generally poor for Latinos as well as African-Americans. If that is the case, then increasing quality of education would not be as useful as improving “attitudes towards economic success.”

    This conclusion is supported by this which shows that increasing expenditure on schools does not necessarily improve outcome:

    http://www.heritage.org/research/reports/2008/09/does-spending-more-on-education-improve-academic-achievement

  • As it turns out, heritability of IQ can explain only about 5% of the correlation between parent/child income (in other words, controlling for heritability of IQ reduces the parent/child income correlation from .42 to .4). The reason for this is that while IQ does appear to be substantially heritable, the correlation between IQ and income is fairly weak (.27).

    Granted, IQ is only one trait which is both potentially heritable and correlated with income. Things like willingness to work hard, for example, may be partly heritable. However, these traits are presumably also present in other countries where the parent/child income correlation is a lot lower.

  • Blackadder,

    GNXP seems to be down at the moment, so I can’t follow your link, though I did find this someone interesting EconLog post linking to the same GeneExpression post:

    http://econlog.econlib.org/archives/2008/07/the_income_heri.html

    I don’t have a particular dog in the IQ fight — I have an inherent dislike for the IQ concept, have never had mine measured, etc. That said, it seems to me that we have a couple of pretty basic conceptual issues to sort out here:

    – People in the US tend to want to believe that “anyone” can succeed, and so that success correlates, to a great extent, with the extent to which people have striven to “get ahead”.

    – Additionally, people tend to want to believe that through some constellation of factors (genes, education, instilling “values”, etc.) they can prepare their children to have success equal to or greater than their own.

    Now, either one or both of these are totally false, or else one would expect, after a certain period, a country to become fairly “sorted” and to find that many people achieve success moderately similar to their parents — not necessarily because there are nefarious forces keeping their parents from succeeding, but because their parents success is a measure of their parents effort and their parents have been moderately successful in passing on the characteristics (whatever they are) that allowed their own success.

    Certainly, you’re right that the degree to which humans tend to inherit the characteristics of their parents is likely to be consistent across countries, and there is a good deal of variation across countries in regards to the degree to which parental income correlates with child income. However, that could potentially be the result either of the country being less sorted (and thus people’s parents abilities having less correlation to their incomes than is the case in the US) or to some difference in cultural attitudes and drives.

    The perception that success is primarily the result of chance is much more prevalent in some of those countries with lower correlations of parent to child income — and the lower correlation of parent to child income could, depending on what assumptions one makes about the heritability of whatever traits it is that result in success could in fact be the result of greater randomness rather than greater correlation of ability to reward.

  • As I think about it further, there are really three beliefs which, like many Americans and classical liberals, I find myself strongly attached to:

    1) People are all fairly equal — there is not some “peasant class” which is inherently fit only for inhabiting the bottom levels of society.
    2) Hard work, saving, etc. will result in “getting ahead”.
    3) By bringing your kids up right and teaching them well, you can make it pretty likely that they’ll all do as well or better than you.

    The thing is, these three beliefs are not really compatible. If it’s true that via effort and ability one can “get ahead”, and if by bringing your kids up well you can assure that most of them will do the same or better than you, then necessarily people are not all that equal (as shown by the fact that not everyone “gets ahead”.

    As a result, people necessarily end up de-emphasizing at least one of these three in order to try to make some sense of the thing. (Or else mindlessly asserting all three without thinking about the contradictions.)

  • Darwin, your three beliefs are logically incompatible only if you assume all parents are bringing up their children right and teaching them well, and that is demonstrably false. I am reasonably confident in the accuracy of your first belief as long as “fairly” is underscored. Most people with multiple children observe remarkable aptitude variances notwithstanding the same gene pool. The second is most certainly true as a generality. The last belief is problematic. Children of achievers seldom equal or surpass the achievements of their parents. There are several reasons for this, which are reasonably obvious upon modest reflection. Nonethless, like most Americans achievers share (or at least want to share) your last belief, but the odds are they will be disappointed even assuming sound child-rearing. But it is certainly true that good parenting produces better results than poor parenting, but that is a different point.

    In the end, the real debate is over the role of luck. Even assuming away dogmatic biological materialism, liberals tend to over-estimate its importance and conservatives tend to under-estimate it. It is a very important factor (indeed being born into a loving family and with a brain wired for aptitudes the market values is luck), but ordering a society around the assumption that luck is the dominant if not dispositive factor (which at bottom is what many liberals would like to do) is extremely pernicious in that it will fail to reward prudent behavior and punish imprudent behavior thereby making society much worse off for all.

  • I agree with your three points, Darwin. Point number 2 is the funny one. Some people will tend to balk at that statement, reading into it a cold and (dare I say) Calvinist worldview. As Mike pointed out nobody denies the presense and influence of “luck”, it’s a matter of to what degree it plays a part. Clearly people of our mind allow for good fortune and misfortune, but the exception prove the rule.

    As a test we can ask the question of the naysayers: how far do you suppose someone will get in life if they don’t work hard or make no effort to save or at least limit discretionary spending? The answer to me is self evident and I suppose it would have to be to them as well. I also think you can rework point 3 that way too. I doubt you would get many people to disagree with point 1, but unfortunately I think there are a number of people who subscribe to it in practice. Oddly enough they’re likely to be the same people who have no use for points 2 and 3.

  • Oops, that should be “people who don’t subscribe to it in practice”.

Rewinding Taxes to the Good Old Days

Friday, January 28, AD 2011

For decades, progressives tended to accuse conservatives of wanting to bring back the ’50s, but in recent years the shoe is on the other foot, with some prominent progressives saying they yearn for the good old days when unions were strong, manufacturing was the core of the economy, and the top marginal tax rate was over 90%. I wanted to see what the real tax situation was for people in a number of different income situations, so I decided to pull the historical tax tables and do the math.

Luckily, the Tax Foundation publishes the income tax tables for every year from 2010 back to 1913. I decided to compare 2010 and 1955. Here are the 2010 tax tables:

I then got the 1955 tax tables and adjusted the income brackets to 2010 dollars using this inflation calculator. (For those interested, the inflation factor from 1955 to 2010 is 713%) The result is as follows:

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19 Responses to Rewinding Taxes to the Good Old Days

  • So our tax burdens are all lower today, but the federal government is spending more in constant dollars (presumably).

    No big surprise, but it is a reaffirmation of why we’re running huge deficits.

  • To an extent, yes. But it’s also a factor that the population is much larger than it was in 1955 and real incomes have also grown quite a bit.

  • In 2010, standard deduction for married filing jointly was $7,300. In 1955, adjusted for inflation, it was $9,764.

    So the poor paid less in 1955. The middle class paid a little more. The rich paid much more. Overall, it was more progressive back then.

    There are huge fluctuations depending on the year. In 1942, when the insanely high 50’s era brackets were introduced, the deduction was $16,053, adjusted for inflation. In 1981, the last year of >50% tax brackets, the deduction was $4,798. So everyone was paying more taxes during the Carter years. Interestingly, I see the Kennedy tax cuts went almost entirely to the wealthy.

  • RR,

    I think you’re confusing the standard deduction with a tax credit.

    If you take $9,764 off 40k, that gets you $30,236 in adjusted gross income, which with the 20% tax bracket (on income up to 32,544) in 1955 makes for $6,047 in tax.

    If you take $7,300 off 40k, that gets you $32,700. You hit the bottom two tax brackets and pay a total of $4,067 in 2010 taxes.

    So it looks like even assuming the standard deduction you’d pay a lot less in 2010. And that’s ignoring the per child income tax credit, if you have kids, which can be a huge deal at that level. The last year when I made 40k we had two kids, and once we did deductions and tax credits I had a net tax liability of negative four hundred dollars — as in, they paid me rather than me paying them.

    That’s way more progressive than anything in 1955. (In part because the country was a lot poorer then than now, making 40k in 2010 inflation adjusted income was much more middle class then than it is now.)

  • Wow, now I try it, it looks like even with the $16,053 standard deduction of 1942, you still would have paid $4789 in 2010 dollar taxes on an income of $40k in 2010 dollars — versus the $4067 you would pay with the $7300 standard deduction in 2010. It must just be really hard to have enough of a deduction to make up for that 20% bottom tax bracket versus the 10% and 15% brackets for 2010.

  • Oops. I forgot to apply the deduction to 2010. Still, it might affect your multiples enough to make taxes today no more progressive than it was in 1955.

  • Now, I only applied the deduction on the 40k, I didn’t try it on the others.

  • It really is surprising how big a deduction you need to make up for lower brackets. I graphed a 33% flat tax and found that for it to look more or less like our current system, we’d need a $30K deduction for single filers! And yet, I’d prefer that. Or an ever higher flat tax and deduction so that only half the country even files.

  • Okay, I graphed all the incomes I’d tried, and you always pay less in 2010, but the difference in progressiveness mostly goes away with a blip in the low 100k range:

    At 40k you pay 1.5x more in 1955
    At 80k you pay 1.4x more
    At 120k you pay 1.26x more
    At 1.2M you pay 1.9x more

    I want to say the flat tax proposals I’ve seen have had 30k+ standard deductions — though I think there’s also an extent to which people would be willing to pay a bit more if the tax code were just simpler.

    Frankly, if my taxes were something I could fill out simply on one sheet of paper, I’d happily pay a bit more than I do now. As it stands, I always spend a whole weekend with TurboTax and still worry that I got something wrong and the IRS will come after me. (After moving to a state and city with income tax, I may break down and hire a tax guy this year. Sucks.)

  • I always do my own taxes, as with two businesses they tend to get fairly convuluted, and I think I understand the Code as well as most accountants, although my math skills are appalling. (I have my wife, who has excellent math skills, check everything.)

    I am not a big fan of flat tax proposals. I have never seen any proposed that I think would keep the virtue of simplicity for more than a few years, before the tinkering of politicians would destroy that key feature. I certainly am also not a fan of the current system either. The problem though is not really the tax code, but the fact that we simply have far more government than most people are willing to pay for, and too many politicians eager to spend money in order to ensure their re-elections.

  • I am curious – do the differences between the 1955 and 2010 tables also reflect other payroll deductions, such as FICA (SS and Medicare – 7.6% of paycheck up to $108,000, if my research is correct)?

    “So while the rich pay less in taxes in 2010 than in 1950, the middle and working classes pay much less as well. And overall, we have a significantly more progressive tax code now than we did then.”

    It seems to me that one would have to take into account sales tax and spending habits as well in order to make a true comparison of this (in addition to FICA deductions, etc.). Indiana, for instance, levied its first state sales tax of 2% in 1963.

  • Any idea how much they paid into Social Security back then? I don’t pay that much in actual income tax today, but being self-employed, SS really hammers me. And you can’t deduct any of it away with charitable giving or anything like that; the only way to pay less is to make less.

  • Ah, that’s a really good point about social security. (And Medicare, which didn’t even exist in 1955.)

    According to this table, it looks like the difference is pretty big.

    In 1955 the rate for employees was a total of 2% (just SS, there was no Medicare) while in 2010 the total rate is 7.65%

    It’s far worse for the self employed. In 1955 they paid only 3% total, now they pay 15.3%.

    Since the entitlement taxes are not progressive at all, that pretty much evens up the field on tax progressiveness between 1955 and 2010.

  • And the non-self-employed still pay that 15.3%. Half of it doesn’t show up on their pay stub, but their employer has to pay it, so it comes out of their productivity one way or another.

    That does far more than even up the progressiveness. On 40K, assuming the standard deductions you mentioned earlier, I get:

    1955: 40K – $9,764 = $30,236 * .03 = $90.71
    2010: 40K – $7,300 = $32,700 * .153 = $5003.00

    So you might be paying half as much income tax now, but 50 times more FICA. And that money is for the programs that even the Tea Partiers don’t want to cut.

  • You slipped a digit there, the 1955 social security taxes would have been $907.10, not $90.71, but the point is dead on. (Actually, it would be a little more than that, because in 1955 the self employed effectively got a discount, for those who were employed it was 2% from the employee and 2% from the employer, so 1208.)

    Also, that underlines how the supposed era of fiscal responsibility in fact (though arguably unknowingly) was no such thing. The social security tax rates have gone up so much because the structure of social security was based on bad demographics, and so those of us paying 15.3% now are effectively subsidizing the low tax rates which people working in the 50s and 60s paid.

  • There’s more to the story than that. In 1955 they didn’t have the Earned income tax credit. This is particularly helpful for lower income families and making the current tax brackets more progressive than they appear compared to 1955. Also, a big part of Reagan’s tax package was to close many tax loopholes that were widely used by and only beneficial to those with very high incomes. Despite how many leftists like to characterize it, the rich didn’t receive as huge of tax decrease as the tables would indicate. It was just a more straightforward approach and shift in emphasis regarding where taxes were paid – relaxing capital gains to encourage investment, was the largest relief the rich saw. However, many middle class folk benefit from that as well.

  • There is no question that the able producers and earners (those who can invest and work and do) are paying much higher taxes now than in the 1950s. The ‘poor’ and by that I mean the able unproductive (those who can work and choose not to) are paying far, far less or are actually net receivers of wealth transfers thanks to LBJ’s New Deal on steroids from the 60s.

    We can discuss rates of taxation, deductions, capital gains, etc.; however, the fact is that we have to count FICA (payroll taxes) as ordinary income taxes. FICA is not a separate account funded like a pension, FICA taxes are general revenue – there are no segregated funds. FICA is just a ploy to collect more in taxes while allowing people to think they are being taxed less. This also increases the entitlement mentality to the middle-class. By making people think their money is being held to be paid out as an annuity, people who otherwise disdain ‘welfare’ begin to defend it. This was also foisted on senior citizens (who have more time to be politically active) in the 60s with Medicare. It was intended by Roosevelt that people feel that they are ‘owed’ their OASDI benefits in order to keep the program alive forever (at least politically speaking, it was economically dead from the get go) and to make it untenable for politicians to repeal it – the so-called ‘political suicide’ of unprincipled politicos.

    When you factor ordinary income, FICA and capital gains (taxes that affect many more in the middle class today than in the 50s) we are paying more in taxes now and for far less of anything except more government, more that is not enumerated in the Constitution.

    The biggest tax of all though is unseen. The devaluation of the dollar by the political spending addicts and their drug dealer the Fed has cost ALL, but the small clique of connected bankers and corporatists, more than any other tax.

    The real question is how much of the taxes from all sources, and there are many more today, now go to service the usurious debt than in the 1950s. Taxes are supposed to fund the general purpose of government for the common good within the Constitutional constraints. This is not why we pay taxes now. We are all debt-slaves and more so now than in the 1950s. People are always regarding themselves as ‘taxpayers’ or exclaiming their loyalty to the country by stating that “I pay my taxes so I am entitled to such and such” – this is a slave mentality. Americans prior to 1913 would NEVER have referred to themselves as such, in fact, they would have likely killed the tax-farmer than call themselves a taxpayer. We have been conditioned to think our taxes pay for ‘necessary’ services, yet so-called services are funded by debt and we are servicing the debt. We may as well live in Goshen.

    I know this seems dramatic, and the reality is this is not as bad as I am presenting it, yet – but, we are on a path that will make all of us wage-slaves to cover taxes that only serve to service debt. Since wages represent time working, we become slaves rendering our tribute to Caesar by servicing ‘our’ debt. If we are rendering all of labors to Caesar, what do we render to God?

    The primary culprit here is that despite the fact that the 50s were not the Utopia ‘conservatives’ paint it to be, as a people, we Americans, were far more moral then than we are now and that is why we are slaves. It is as St. Augustine told us centuries ago, as many vices as a man has, he has masters.

    We can say as many government handouts, subsidies, programs, tax-incentives, etc – basically debt for perceived benefits as we have, we have a master and that master is our Federal (feudal) overlord and his banker (the Fed).

  • Your analysis is interesting, but why do you stop at a mere 1.2 million? All the action in the last half century has been in the stratospheric range. Today’s hedge fund managers would have paid much much more under the 1950’s system. Here’s a little food for thought, courtesy of a commenter at the NYT:

    “In 1968, the largest American corporation was General Motors. The CEO of GM made 66 times more than the average GM worker. He paid a top marginal federal income tax rate of 70%. By 2005, the largest American corporation was Wal-Mart. The CEO of Wal-Mart made 900 times more than the average Wal-Mart worker. He paid a top marginal federal income tax rate of 35% (and probably really only paid about 15% if he was paid mostly in “dividends”)

    I would like to see a more thorough analysis than what you have presented here.

  • Doug,

    The 1.2M figure was semi-arbitrary, but also because the standard tax rates are on salary-type income. As you point out, executives and hedge fund managers and such often make much of their income in some other form than salary income.

    For instance a CEO may be given a stock grant or set of stock options worth $40M, but not be able to sell those shares (or exercise that option) for a certain amount of time. The taxes on those kind of earnings work differently, so it was simpler to not deal with them.

    Similarly, hedge fund managers get much of their money via getting a share of the profits of their fund, which is taxed as capital gains rather than salary.

    But my question here is in whether a regular guy actually paid less in taxes back in the “golden age” of the 1950s, not how much CEOs pay. After all, it’s not really any skin off my nose if some other guy I never meet makes more than me.

Buying A Car To Save Money

Friday, January 14, AD 2011

Cars that get over 40 miles per gallon in fuel efficiency are, reportedly, becoming all the rage, with more models from American and foreign car makers being introduced at the latest Detroit Auto Show.

So I got curious, having just started a 18-mile-each-way commute, what exactly are the savings one can achieve by buying a more fuel efficient car? I assumed a situation faily like mine: My car is paid for and costs me only minimal maintenance to keep up (a 14-year-old Toyota Camry) and a 20 mile each way commute.

Say you’re considering buying a new car which gets 40mpg for $20,000. That seems moderately standard for these cars. Assume a 40 mile daily round trip commute, and an additional 40 miles of weekend or additional driving. Assuming a current care actual efficiency of 20mpg. Assume the price of gas goes up to $4/gal. How long would it take for you to make up the cost of that new car in fuel savings?

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11 Responses to Buying A Car To Save Money

  • I also performed this calculation before I purchased my new car 5 years ago. I found that is was the same way. I didn’t really have a choice with my car at the time expiring at a quickening pace. Needless to say this calculation did figure into my purchase but was low on the priority list.

  • This applies to the environmental impact as well. Getting rid of an older, less efficient, car by replacing it with a newer one ignores the mountain of ore and coke, thousands of gallons of water, bauxite, thousands of Kwh of electricity, crude oil, etc., required to make the iron, smelt the aluminum, refine the plastics, etc., that go into that more efficient car.

    If anyone wants to conserve nature they’d do well to focus on durability and longevity as well as, or even more than, energy efficiency. Would be interested in this sort of an analysis regarding energy efficient light bulbs.

  • I agree that in general, it makes little sense to buy a new car just to improve your gas mileage… except maybe perhaps if you currently drive an original Hummer or other similar vehicle that barely gets double digit gas mileage.

    That being said, I would point out that the analysis is flawed in a couple of ways. The most basic flaw is that it assumes you would keep the Camry for another 16 years. Now, assuming you have owned the Camry since it was new, and that your driving habits have remained constant (probably a big if), your Camry should already have about 175,000 miles on it. By the end of 16 years it will have about 375,000 miles on it. Now toyota makes a decent car and engine, but after a car already hase 175,000 miles on it, you can be sure that some of the maintence over the next 200,000 is going to be more than minimal. If the alternator and fuel pump haven’t been replaced already, they will be soon, likewise you can expect at least one new or rebuilt transmission and maybe even need a rebuilt engine after say 250,000 miles. So, in order to keep the Camry running for another 16 years, I would expect that you will need to put at least $5,000 to $6,000 into it above and beyond basic maintenance (i.e., oil, tires, brakes). Of course on the bright side, a 14 year old Camry is going to loose a lot less value over the next 16 years than a new car will loose in its first two :).

    In any case, unless you are the sort to run a car completely into the ground (and you might be), the better analysis will be to look at how much longer you are likely to keep the car and balance those costs against buying X years early. In practice this means it probably never makes sense to trade in early just to get better gas mileage. In fact, it might well make sense to wait say two years when many of these 40 mpg cars will be hitting used car lots costing 40% less than the new cars of today :).

  • Bruce Williams, the talk radio finance advice guy (sort of an early Dave Ramsey, if I recall correctly), once said that you’ll never again own a car as cheap as the one you have right now, or words to that effect. In other words, buying a different car will almost always cost more in the long run, even if your current car needs a fair amount of work. There are cases where a car is really shot, of course, but they’re rarer than people think. The person who says a newer car will save in the long run on gas mileage or repairs is usually just kidding himself.

    That becomes even more true as licensing fees climb. I bought my current car for $150, and then immediately more than doubled the cost when I went to pay the state of Illinois for the privilege of owning it.

  • I’d be happy to get the tranny fixed on my 1996 Dodge van with 240,000 miles.

  • Aaron (and Bruce Williams) is right. There is nothing wrong with replacing a current car with a new one, but it usually cannot be justified on purely financial grounds. The notion that one should “trade in” a car after three or four years in order to save money on repair and maintenance expenses is really a myth, yet one believed and practiced by many Americans including many Americans who are otherwise financially savvy.

  • “you’ll never again own a car as cheap as the one you have right now”

    That is even more true since “Cash for Clunkers” took a lot of still-serviceable older cars off the market, thereby driving up the price of used cars and making them less viable as an alternative to buying a new car.

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  • All true as to milage. However, an older car with mechanical “issues” can rapidly become a money pit. My first car out of law school was a cherry red Thunder Bird with 37,000 miles on it, sold to me by a sweet little old lady who I suspect now probably rolled back the odometer. It was a superb vehicle until it hit “77,000” miles in early 1985 and then I had unending trouble with it, and easily pumped $3,000 into it in nine months, after having several different mechanics work on it. After it collapsed for a fourth time, and I was told it would cost another $1800.00 to get it back on the road, I sold it to a secretary’s husband for parts for $250.00. Since then I have never purchased a used vehicle, and I rarely keep a car much beyond 100k. With two vehicles for the family, I can normally get 8 years out of each car.

  • It seems that this shows that it’s silly to change a perfectly good car for a new car just for the fuel savings, and perhaps even for the additional repairs. What I’m not clear on is whether or not if you’re buying a new car anyway (old one too expensive to keep up, etc.) if it is worth it to invest the money into purchasing a car with better fuel efficiency.

  • Michael,

    I think the trick would probably to be compare the cost of the two cars you’re considering and figure out how long it would take up to make up the difference between the two (assuming the more efficient one is more expensive) via gas saving.

    For example, you might be deciding between buying a 2005 Civic which gets around 28mpg and a 2010 Civic which gets 40mpg. The cost difference might be about 10,000. You could plug those figures, and the respective fuel efficiencies, into the equation and come up with the break even point it.

    I was showing that given my commute and my current car, I’d save about $25/wk if I bought one of the new, highly fuel efficient cars that’s coming out. (Obviously, with a hybrid the savings might edge up to $30+.)

    That would be worth getting if you’re buying a new car anyway, but it’s not necessarily worth paying more than about $8k more for unless you have a much longer commute, are betting gas will get very expensive, or have a strong moral feeling that you need to conserve fuel regardless of cost.

The Super Secret, Mystical Recession Cure

Tuesday, November 2, AD 2010

For some reason, I found myself reading through Paul Krugman’s recent NY Times material. Perhaps it was a desire for a little mental vaunting, what with the direction the elections seem to be taking, and if so I should have come away quite satisfied as Mr. Krugman is in full Chicken Little mode. A GOP takeover of congress will be a disaster, and we should all be very afraid. Stupid people are allowing their emotions to run away with them and will destroy the world economy through getting all moralistic about debt. And of course, the reason why the entire world doesn’t see things Krugman’s way is because macroeconomics is too hard for them to understand.

Well, I’m certainly prepared to admit that Krugman’s expertise in macroeconomics is greater than my own — and I’ll even stretch and say that my understanding probably goes farther than that of the average bear.

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15 Responses to The Super Secret, Mystical Recession Cure

  • Here is what is so very difficult for this idiot (moi) to understand: why a man with a PhD that knows there is to know about economics is not a multi-billionaire?

    Posted at Instapundit: “They’ve spent the past 18 months calling you names and questioning your sanity and patriotism. But today you get to vote, and that’s all that matters.”

  • I don’t think a formerly unemployed person who gets a new government job is going to sit on his money because of some mystical economic anxiety that wouldn’t exist if it were a private sector job. A well-designed stimulus works in theory and in reality.

    After two years the program is a success, and so the wind turbine program ends. Now what happens to those workers and the capital investments in those factories? How easily are they turned to other work, and how long are they unemployed in the interim? Do we simply end up with another economic slowdown as a result of massive unemployment in the windfarm industry?

    Same could be said of the public works projects of the Great Depression. If it’s successful, the economy would pick up and there would be more demand for unsubsidized jobs.

    The way I see it, the problem with stimulus is almost entirely about your second point. The government is unlikely to create many jobs that don’t replace private sector jobs. What percentage of the unemployed can weatherize homes and make wind turbines?

    Ideally, we would’ve had a high skill jobs program in place so the unemployed can tutor kids or patrol streets. But there’s no chance of that happening now.

  • I didn’t read your article, DC, because then I’d have to read excerpts of Krugman, and that’s not going to happen. But I hope your article was good anyway.

  • I certainly don’t think that a formerly unemployed person who gets a government job won’t spend more money than they did while unemployed — but in order for the theory to work they need to not only spend more than while unemployed, but that spending needs to make the private sectore become so encouraged that they decide good times are here again, ramp up capacity, hire a bunch of people, etc. That seems pretty hard to do.

    To be honest, I would think that in our modern economy the best approach (though it doesn’t have the virtue of allowing congress to spend like a drunken sailor on all their favorite programs) would be to stick with a stimulus which consists of payroll tax relief for businesses and extended (and perhaps more generous) unemployment benefits for those actually out of work. There are those who argue that even this slows the reallocation of resources, but I’d think it’s an acceptable risk because of the human benefits.

  • Extended more generous unemployment benefits = Government jobs without the benefits of work

  • I thought you made some really good points. Particularly, that the spending needs to be focused much different in this economy than in the 1930s and that people are scared to spend b/c they’re worried about the bill they’re going to be hit with in the future. I know I am expecting taxes to be have to be raised sometime soon, so I’d be preparing if I have any money to save.

  • Paul Krugman is, to put it as nicely as possible, an idiot. Keynesian economics is a failure.

    The private sector employs the most people. The private sector is the engine of creation and ideas. Government is not. Stimulation of the private sector through lower personal income tax rates, lower corporate income tax rates, and lower taxes on investment and capital gains is what successfully stimulates an economy into recovery and increased employment. The subsequent economic growth results in increased tax revenues.

    Krugman is far too stupid to understand this. So are the Democrats and far too many Republicans.

  • Keynes was particularly annoyed that in a depression people tend to save and not spend. Guess why?

    Mr. Krugman is a product of the academy; his ideas are academic.

    Try Belloc’s ECONOMICS FOR HELEN, as a simple but accurate explanation of the public economy. As J.K. Galbraith noted, economics is not that difficult to understand – unless you burden it with unnecessary and superficial mathematics.

  • Associating current Keynesian economics with JM Keynes does the man a disservice. He was a pragmatic man who espoused government spending when it could have helped. I doubt that he would have endorsed the the policies of his noisier followers.

  • “Extended more generous unemployment benefits = Government jobs without the benefits of work”

    The difference is that unemployment pays people less than they would make working to look for a job — a government job turns someone from a job seeker into a job holder. Thus, leaving someone looking for work doesn’t involve a top down decision on specialization, it leaves emergent order to work out what sort of jobs people should train for and take.

  • RR is kidding, right?

    About the “Extended more generous unemployment benefits = Government jobs without the benefits of work?”

    That’s a joke, right?

  • Oh, sorry, he said, “…without the BENEFITS of work.”

    Perhaps it’s because it’s 1 AM, but something made me think he was saying something like, “…without the DRAWBACKS of work.”

    Never mind.

    (Of course, it isn’t just “without the benefits of work”; it’s “with the additional drawbacks of a marginal increase in the incentive for joblessness.”)

  • Te Deum laudamas . . .

  • What was Reagan’s definition of an economist? Someone who tells you why something that works in practice won’t work in theory?

  • I don’t think it’s economics as a whole that’s the problem — Krugman just happens to be one of those people who, in regard to politics, believes that if you fail at something it’s because you didn’t do more of what he wanted.

What Is This Wicked Capitalism?

Thursday, October 21, AD 2010

One of the difficulties that comes in discussing the many “isms” that populate the landscape of political discussion is that very often people use the same words without mean the same things, or indeed without having any clearly defined idea of what they do mean. While this is the case with nearly any ism (socialism, liberalism, libertarianism, conservatism, etc.) I’d like to address in this case the way in which opponents (particularly Christian opponents) of “capitalism” tend to address the object of their condemnation. This is in some ways a beautifully typical example of a Christian opponent of capitalism attempting to describe what it is he is condemning:

We must remember the capitalistic system we live in also is a materialistic ideology which runs contrary to the Christian faith, and it is a system which is used to create rival, and equally erroneous, forms of liberation theology. It is as atheistic as Marxism. It is founded upon a sin, greed. It promises utopia, telling us that if we allow capitalist systems to exist without regulation, everyone, including the poor, will end up being saved. The whole “if we allow the rich to be rich, they will give jobs to the poor” is just as much a failed ideology as Marxist collectivism.

Admittedly, this is a somewhat muddled set of statements, but I think we can draw out of it the following statements which the author, and many other self described critics of capitalism (in particular from a religious perspective) believe to be true:
-Capitalism is a system or ideology much as Communism is.
-Capitalism is based on greed or takes greed to be a virtue.
-Capitalism is a materialistic or atheistic philosophy/system.
-Capitalism could be summed up as the idea that “if we allow the rich to be rich, they will give jobs to the poor”
-Capitalism promises utopia if “capitalist systems” are allowed to exist without regulation.

While one approach to this is simply to throw out the term “capitalism” entirely, what I’d like to do is accept that claim that we live in a “capitalist” system and that this system is roughly what libertarians/conservatives advocate, and proceed to address the claims made about “capitalism” in that context.

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31 Responses to What Is This Wicked Capitalism?

  • “If anything, capitalism is based very much on the assumption that human nature will remain the same as it has been in the past.”

    And that is one of the safest predictions about the human condition that anyone can ever make.

  • I think the only people who might be labeled as capitalist utopians are Randians. Even that might be stretching it.

  • Both capitalism and Marxism promised to point out the path for the creation of just structures, and they declared that these, once established, would function by themselves… And this ideological promise has proven false.

  • True, Paul, though Randians seem to want more than just the private ownership of the means of production in order to produce their utopia.

  • Henry,

    Where did capitalism “promise to point out the path for the creation of just structures”? Was that in the Capitalist Manifesto written by Mr. Capital?

  • The closest thing one might find to a “Capitalist Manifesto” would be Wealth of Nations. Although Smith argues that free market economies are more productive and more beneficial for society, I don’t recall anything that “promise[d] to point out the path for the creation of just structures”.

    Of course, it’s been 20+ years since I read it, so my memory may be faulty.

  • “Was that in the Capitalist Manifesto written by Mr. Capital?”

    ROFL

    It’s individualism that is condemned by the Church – not capitalism. You can have collective or cooperative forms of capitalism.

  • The closest thing one might find to a “Capitalist Manifesto” would be Wealth of Nations. Although Smith argues that free market economies are more productive and more beneficial for society, I don’t recall anything that “promise[d] to point out the path for the creation of just structures”.

    To be honest, I haven’t read Wealth Of Nations since college, though I did read Theory Of Moral Sentiments fairly recently. I’m not sure I’d say Smith really seems to talk about “just structures” one way or the other. He thinks that freer trade will tend to result in better outcomes, and that’s about as far as he goes. Morally he’s a very psycholical/emperical kind of fellow, and as such it seems to me that while he’s very solid on how people tend to relate to each other and to experiences, he’s not the sort you’d turn to for any kind of sweeping moral vision.

    It we take Smith as the “Mr. Capital” of capitalism, it seems to me that capitalism is the very opposite of utopian.

  • Excerpted from a WSJ Letter to the Editor, today:

    FDR got by because almost no one understood how bad government policy distorts the economy by misallocating resources. Today many understand that the current recession is rooted in the massive distortions caused by the (bipartisan) political crusade for making home ownership affordable to nearly everyone.

    In the 1930s very few people understood that government policies meant to stimulate the economy are counterproductive. Today, in contrast, we have abundant evidence that further government interventions can only prolong and increase our economic distress. Many knew that the “stimulus” spending would fail to lower unemployment even before the bills were passed. Now only deep idealogs believe more government action will be our salvation.
    Better economic comprehension today is creating very choppy waters for President Obama and his party.

    Before my lib genius brothers get your knickers in a bunch, here’s a pithy quote from Congressional Research Service; 2/1/2010; “Government Interventions in Response to Financial Turmoil” – Summary:

    “ . . . an unprecedented housing boom turned to a housing bust.”

    And, you can thank Andrew Cuomo and Christine Gillibrand for it.

    I am not current with on the books. I’ve been working in this financial services whirlwind for 33 years, and his is the fourth or fifth (and direst, is tha a word?) financial crisis I’ve experienced.

    What is just about mass brigandage? – Whether I do it or the government, it’s theft.

  • Funny to see the great Catholics mocking Pope Benedict here.

  • For those mocking Pope Benedict, you might want a longer quote:

    The problems of Latin America and the Caribbean, like those of today’s world, are multifaceted and complex, and they cannot be dealt with through generic programmes. Undoubtedly, the fundamental question about the way that the Church, illuminated by faith in Christ, should react to these challenges, is one that concerns us all. In this context, we inevitably speak of the problem of structures, especially those which create injustice. In truth, just structures are a condition without which a just order in society is not possible. But how do they arise? How do they function? Both capitalism and Marxism promised to point out the path for the creation of just structures, and they declared that these, once established, would function by themselves; they declared that not only would they have no need of any prior individual morality, but that they would promote a communal morality. And this ideological promise has been proved false. The facts have clearly demonstrated it. The Marxist system, where it found its way into government, not only left a sad heritage of economic and ecological destruction, but also a painful oppression of souls. And we can also see the same thing happening in the West, where the distance between rich and poor is growing constantly, and giving rise to a worrying degradation of personal dignity through drugs, alcohol and deceptive illusions of happiness.

    Ask Blosser if you need help finding what Pope Benedict has said. He has it on his Ratzinger blog. Oh, and btw, you just proved my point. Thank you. Good bye.

  • Henry,

    Your attempt to quote Benedict completely out of context, and then accuse others of mocking him, does not say much for your ability to engage the topic at hand, or indeed comprehend it.

    Proof-testing is not argumentation, nor a valid path to knowledge, as you should well know.

    Benedict is not addressing the relative merits and differences of Marxism and capitalism as systems in that passage, nor their origins or natures. Rather, he is relating historically how attempts to treat either Marxism or capitalism as if they would, in and of themselves, create just systems, failed in the Latin America.

    The key difference between capitalism and Marxism in this respect, as I pointed out and you have failed or refused to understand, is that is that capitalism is not in the first place a utopian system that claims to have such an ability.

  • Funny to see the great Catholics mocking Pope Benedict here.

    This post mocks Pope Benedict in the same way that jokes about grown men living in their parents’ basement mocks the traditional family.

  • I don’t even think he wrote that as pope.

    But some people love blindly following authorities more than they do thinking. A lot of popes have said a lot of things about a lot of economic issues. But there have been no decrees forbidding anyone from starting a business and making a profit.

  • “This post mocks Pope Benedict in the same way that jokes about grown men living in their parents’ basement mocks the traditional family.”

    Best comment of the week BA!

  • Actually, I would agree with the more full Benedict quote (though perhaps Henry would not) and indeed would go further and say that no economic system will create just structures by itself and without prior individual morality by promoting communal morality. It is not in the capacity fo an economic system to do such thing.

  • “This post mocks Pope Benedict in the same way that jokes about grown men living in their parents’ basement mocks the traditional family.”

    😉

    Awesome!!!

  • “I don’t even think he wrote that as pope.”

    He did: http://www.vatican.va/holy_father/benedict_xvi/speeches/2007/may/documents/hf_ben-xvi_spe_20070513_conference-aparecida_en.html

    Funny to see the great Catholics mocking Pope Benedict here

    Mocking, no, as BA humorously pointed out. Disagreement? You have a better case, though you could use more evidence/argumentation.

  • Ah. I stand corrected. Still, I’ll wait for the statement that says we can’t start businesses or make profits.

    On the other hand, we do have pretty clear denunciations of socialism, such as I referenced in my last post.

    The neo-Calvinists at Vox Nova, though, holding to their view of the depravity of man, believe that a large managerial state is the necessary requisite of charity and justice.

    If only they could see how it destroys and mocks both.

  • Maybe a better way to “sum up” capitalism in one little sound bite would be “if you let people control their own resources, they’ll make better choices”? Or maybe “Each person is best suited to watching his own interests”? Still a bit broad for an economic system…. Maybe “Let people spend their own money, and they won’t waste as much”?

  • Henry,

    Where did capitalism “promise to point out the path for the creation of just structures”? Was that in the Capitalist Manifesto written by Mr. Capital?

    “Was that in the Capitalist Manifesto written by Mr. Capital?”

    ROFL

    —-

    The comments were mocking a quote of Pope Benedict. It is clear how clueless the people who comment here really are. I just quoted that text. You can’t say I said anything out of context– I just quoted the text. And the text you mocked. And you can’t get away from “the bigger quote is fine.” You mocked what the quote says.

    People can see. You have been shown for what you are. Spin as you want, the words of the Pope were ridiculed.

  • “Actually, I would agree with the more full Benedict quote (though perhaps Henry would not) and indeed would go further and say that no economic system will create just structures by itself and without prior individual morality by promoting communal morality.”

    Then why did you attack a post which said just that?

  • Henry,

    You quoted one line of Benedict’s out of context in a way that suggested:

    – They were your own words written specifically to respond to the post
    – That you were attempting to argue by assertion that capitalism did, in and of itself, as a system, make the promise that it would create just structures

    Given that you had provided no back-up for this assertion, this was rather mockable. and the whole gambit becomes more so when you fall into this whole “you mock Benedict” line. Now, if you want to say any thing in response to the actual post, that would be most welcome. Conversations are best when they are two way. For instance, perhaps you have an importanit source or thinker you would like to cite which you believe demonstrates that capitalism is widely believed or represented to create just structures on it’s own and irrespective of individual morality.

    However if your going to continue this silly “you mock the pope” line without bothering to address the topic at hand, I’ll simply leave your comments inthe moderation queue, as further travel down that road would go well past silly and into pathetic.

  • Actually we already passed pathetic in the Political Miscellania thread where mocking the selfish, gravely slothful and exploitive was turned into mocking the tradional family.

    Plagiarizing is a new low. It doesn’t matter if the intent was to decieve the readers into thinking the plagiarist was more insightful than he actually is or if it was a shallow and immature attempt to win a self-serving gotcha point. It’s just a shameful new low. I’ve seen a lot of silliness on the internet and regretably contributed to it, but I have never witnessed a thing such as this.

  • Henry apparently has gotten into one of his fits where he alone discerns that his opponent has betrayed their true wickedness, and will spend the rest of the thread denouncing the opponent as revealing their darkness, while every other onlooker is bewildered at what he’s talking about. It won’t matter if you explicitly tell him you don’t think what he ascribes to you, for he has secret knowledge about your views that not even you know. Quite sad, really.

  • The neo-Calvinists at Vox Nova, though, holding to their view of the depravity of man, believe that a large managerial state is the necessary requisite of charity and justice.

    But even a large managerial state is made up of depraved men, so it does not seem to be a solution to the depravity of man.

  • “Capitalism is based on greed or takes greed to be a virtue.”

    This is asserted by people on the right and left who lack an understanding of virtue as the golden mean. A proportionate interest in profit isn’t greed. It’s appropriate. Profit is a means to an end; the goal is freedom from want. Greed is an excess; animosity towards the flesh is the corresponding absence.

    The Randers get a kick out of saying that greed or selfishness is a virtue. It’s kind of sad, because they’re doing it to “shock the squares”, even though no one’s been shocked by a Rander in decades. As ideologues, they are attracted to extremes, so they err toward an excess of desire for wealth.

    The left sees the capitalist embrace of wealth and assumes it’s an excess. They point to the Trumps of the world and believe that the capitalist sees him as a role model. It’s possible to see the profit motive as virtuous and still recognize Trump as the embodiment of every embarrassing vice.

  • I believe the Pope is infallible in matters of Faith and Morals. I do not think that quote infers that a person who kept himself sane and sober and worked hard for a livin to support his wife and children as best he could AND does not believe that the overnment is a solution, but a problem is an evil person.

    If so, I imaine the vatican has unli9mited funds.

  • And then, Henry was silent.

    You write with clarity and truth Darwin. It would be nice if your critics responded to the actual words and ideas written in these excellent posts.

  • Well, I think Spengler had already caught on to the idea that capitalism and socialism/marxism/communism are but two sides to the same coin. Of course in practice it’s a continuum. But what I’m trying to say is that it’s all people’s attempts to cope and hopefully thrive in a post-Fall context–and they aren’t aware that a fall occured. Economic and political systems have a tendency to dispense with God and to rival his kingdom’s claims.

  • “Labeling this tendency to respond better to perceivable benefits as “greed” seems rather harsh — one might as well say that cooking is motivated entirely by gluttony.”

    Or that marriage is motivated entirely by lust, or that asking for days off from work is motivated entirely by sloth. Or that the invention/discovery of fire was motivated by a desire to commit serial arson. ANY human desire or tendency can become sinful if indulged to excess; that doesn’t negate the fact that there is usually a legitimate and beneficial way to exercise that desire.

Is The US Destroying the Middle Class?

Monday, October 11, AD 2010

With a certain frequency, commentators see fit to worry as to the extinction of the US middle class. One among these, it seems, is one Edward Luce, who composed a piece on “The crisis of middle-class America” for the Financial Times. The piece profiles two families making about $70k/yr each, and worries as to the future of them and families like them. Both are, by coincidence, families of loyal Democrats, and the piece sports the requisite concerns about the potential dangers of tea party barbarians howling at the gates of the US order.

I feel myself in an odd position in regards to such stories. The particular definition of “middle class” picked for the story is a family income threshold which five years ago was frustratingly above our families income, and which now is embarrassingly below it. In this regard, I recognize myself to be uncharacteristically fortunate. However, having recently made a good deal less than this (and coming from a family which never exceeded such a total, even adjusting for inflation) I feel that I have some familiarity with the sort of middle class world being discussed — while I can’t escape the feeling that this seems a very squalid and foreign world to the Financial Times writer.

Added to this sense of class conflict is that Luce seeks to build up his story with juxtapositions of facts which sound like they mean more than they do.

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8 Responses to Is The US Destroying the Middle Class?

  • Has Elizabeth Warren’s _The Two Income Trap_ come up here before? There’s a good hour-long Youtube lecture with all you need to know about it. It’s quite relevant, especially in light of the FT.com article’s reference to the wife’s housewife mother.

    Warren notes how two incomes push up the price for major purchases while also diverting family resources into supporting the second income.

    If memory serves, the Catholic social teaching of Rerum Novarum regarded the inability of an honest working man to support his wife at home as a sign of unjust inequality. Working from this view, the feminist business model has generated profound economic inequality in the name of gender equality.

    Among the other facts the FT.com writer is thatn that male wages especially have stagnated or declined since the 1970s. People are right to wonder why their fathers or grandfathers seemed so much better off economically. They generally were.

  • To say that anyone is better off “economically” than another does not really make sense except in a popular and common misuse of the term “economy.” I think you mean to say that our fathers and grandfathers were better off financially.

    Economics deals with the use and/or allocation of scarce resources, which is pretty much all resources. Someone can be very well off financially and be an economic mess (about a dozen celebrity musicians and athletes immediately jump to mind).

    In that context, I would dispute the blanket generalization that our fathers were better off either financially or economically. After all, those days led to these days. Did those men who earned such great union wages set aside money and resources to provide for a time when such work might not be available? Or did they spend it on microwaves, designer jeans, station wagons and lava lamps? Crass conumption has been a proud and common feature of American life from the bottom to the top for as long as I can remember. Whose fault is that? The people who designed and sold the goods, or the people who consumed them with no thought toward tomorrow’s rainy weather? The answer, of course, is both. Not one among us is innocent.

    The FT piece sounds like typical Eurotrash America-bashing. Ask Greece how great “universal health care” (a nonsense term) and a fully unionized labor force is, if you can dodge the flaming trash cans being lobbed through their streets as their economy crumbles long enough to have a civil conversation.

  • People are right to wonder why their fathers or grandfathers seemed so much better off economically. They generally were.

    My grandfathers both were at the mid-point of their lives in 1930, at a time when the per capita income of the United States was about a quarter of what it is today. Somehow, I doubt their contemporaries were better off than my contemporaries in a brutely material sense. My father was at the mid-point of his life in 1954, when the per capita income of the United States was about 40% of what it is today, so, same deal.

  • I think a lot depends on where you live and how you define middle class. I think that the media tends to represent “the middle class” with examples from the very top and the very bottom of the income bracket, but ignores the vast swath in between the extremes.

    Our income is in the lower 40s with a family of five. From this perspective, 70K borders on being rich. From someone making six figures, 40K is a very small amount of money indeed. What is the reality?

    In our home, money is closely budgeted and we have no debt besides the mortgage. We have two cars, own a house, have cell phones, cable TV, unlimited long distance, broadband internet, a microwave, a dishwasher, and even go out to eat every once in a while. Is that poor?

    A closer look at our reality would reveal that we live far from work (40 miles), so as to afford our house. The ‘new’ car is five years old; the old car is 16. Our cell phones date from the early 2000s — nobody is going to steal those puppies. The TV is from the 90s. Most of our savings cushion comes from our pre-children stash. We put enough in the 401K to make the company match, but our monthly savings is meager and mostly gets eaten periodically by car maintenance. We have zero expectation of Social Security and the college fund is just two or three thousand dollars. Is that sustainable?

    We could cut back on lifestyle a bit to up the savings, but we do have the expectation of making more in the near future. But, to tell the truth, I thought we’d already be making more than we do. How long do we hold out?

    We could become a two-income household, but we do not want to outsource the raising of our children and add the expenses associated with not having an adult run the household. At what point do our ideals and aspiring middle class lifestyle undercut our financial security?

  • I share the same concerns of Jenny… The topic of this post is related also to these posts and the comments contained in them:

    The Next Great Depression
    http://the-american-catholic.com/2010/10/07/the-next-great-depression/

    The Federal Reserve
    http://the-american-catholic.com/2010/10/11/the-federal-reserve/

  • I had a reasonable middle-class income when I was working. Did everything right – saved the max I could into my 401(k), stayed 33 years in a job that I didn’t love or hate too badly – it provided a needed security and income (from $7,500 to $60,000 over the 33 years), and since it was a government job, guaranteed a reasonable pension for life. No fancy cars/vacations/eating out, etc. I was looking forward to a nice reasonable middle-class retirement. Until my parents who had only SS income for their retirement moved in (they paid tens of thousands to send their 3 kids to Catholic schools). Worked okay until they both started getting health problems. Then everything went to pieces. My last year of work I was taking care of 2 disabled parents alone, had to borrow heavily on credit cards just to live and keep the house in working order, had to buy a new car I did not need to accommodate the wheelchairs, had to move because Mom/Dad couldn’t walk and do the stairs. Now, on paper, with Dad’s SS and my pension, and 401(k) withdrawal, we’re making a middle-class wage. But all of his SS is used to pay back the money we owe, ditto my 401 withdrawal, and we are living pension check to pension check – not what retirement was supposed to be. In 2 years, the 401 will be completely gone, Dad will probably be dead (Mom died last year), and my $30,000/year pension is the only thing that will keep me from starving. And oddly, compared to many who used to have middle class jobs and now have no jobs, I’m doing well. I now rent in a retirement community where most people did have the middle-class life while they were working. These are folks who made a living in good paying blue-collar/white-collar middle class jobs, and still have decent SS and/or pension income so they can enjoy their retirement years (until they get sick, then forget it). Unfortunately, I think that for years to come, they’ll be the last of their breed. Many middle-class jobs are being outsourced and disappearing, and retirement plans are rapidly becoming 401(k)s where one is forced to gamble on uncertain stock/money markets. We now have executives who vote themselves lavish retirement plans for life and salaries that are 400 times their employees’ salaries. College graduates are living with Mom and Dad because their potential jobs have gone out of the country to maximize the corporate profits. Millions of people are hurting, yet the corporations are sitting on over $1 trillion in cash and not hiring people. And yet many politicians are crying about the poor yacht owner having to pay a luxury sales tax on his million-dollar yacht, and not caring that they are cutting aid to families caring for disabled parents/children. What seems to be missing in the mindset of those in charge is something that was obvious as long ago as Henry Ford of Model T fame – pay your employees a living wage so they can afford to buy your product. America’s wealth was built not on the few rich, but rather on the middle-class who could afford the houses/cars/computers, etc, that they produced – a middle-class that was until recently was growing or holding its own. Now, the rich are getting still richer, and the middle-class is becoming poorer. And neither Obama (a nobody politician who in a sane world would never have come near the presidency) and his abortion-on-demand Democrats nor the no-tax Republicans (unless they pay for unnecessary wars or buy elections – oh, wait – no taxes ever, we’ll let the grandkids pay) have the guts to do something about about it.

  • Profile: 27 yr old male that has a Undergrad and soon a master’s education. My first job out of college was making 50k. The average salary in my area for a family of four is 51k and about 30k single. That year I moved into a house after only six months at my parents. I saved roughly 10,000 for my house that is about 97k. My fiancee is a medical student. We do not have children, but we have two dogs.

    In the last 4 years some events in our own lives made us realize how people such as Jenny and EMS live. Both parties are the problem for example after one your I was laid off that job taking another job about 80 miles from my home. For a while that was fine because I was allowed to work from home on some days. Then they got acquired by HP. In the first year I noticed people leaving that were with the company for over 5 years and replaced by those nice VISA carriers. Those in the website and others point the finger to unskilled working being taken by illegals, but this is happening to skilled work as well, but legal slavery if you see how these workers live. At my job I say 2 guys replaced with 5-6 foreigners that made probably as much as the two people that was laid off. They lived in a house next to my co-worker all 6 of them with there families to afford the housing. Later that year, the company changed the terms of my employment to be that I had to come into the office everyday. At that point I decided to leave and go back to school fulltime.

    I understand many people do not have the ability to do this because of the risk to the family. As well we live in a house we know if i lost my job we can still afford it. Then came the forecloses and discounts to purchase just after we purchased our own meager house. We both felt screwed because we did the right thing and saw some friends job into houses they would have never afforded before, yet did not buy a house they could afford without these subsidies. So we live in a middle to lower middle class home and they live were my parents live that took them a decade of savings to move there so I can have the education I was able to receive. ( But life is not fair I guess )

    After I left work my dogs got sick and my fiencee broke her leg from falling down some ice stairs at the grocery story. We now have to spend over 1,000 for her leg and about the same amount for your does going to the vet. Turning around to real people. How do you handle paying 2,000 in one month for these random expenses? Do you have the means to leave your employer. As I said before we got a house that could be paid for if I lost my job using only my fiencee’s loans. As we both see it as her income until she becomes a doctor. So taking that she only makes 20,000 dollars a year in loans ( she was lucky to have a scholarship to pay for all medical school tuition and books. ) We almost missed the mortgage that month if it wasn’t for me always saving over 20% of my income we would have been already behind in our house payments.
    It is scary we do need change that is why I voted for obama. McCain had the same policies as bush, but I see obama and he has the same policies so it seems from clinton. We need new politicians I hope to see people voting not for one issue in the future. To be honest same-sex marriage and abortion should not be in the political discussion never should have gone past the states. I don’t care what you call yourself we all can agree that America and the American Dream is slipping way from both Dem and Republicans. I think we need to first come together as Americans to see what we both agree to be a problem and come up with mutual solutions. It seems that we lost that and our politicians have lost that was well. Why does the republicans say no to everything and also the democrats and make this show for all of us? Why can’t we find some middle ground ever. why are we in a America that one party needs to almost take complete control in order to pass laws that are needed? I think we both can agree we need some change and it starts with the left like myself speaking to many of you that are from the right side of the world to start talking before we expect or elected officials to do the same.

    In the end I think most people want to live with no fear. That takes a good income doesn’t need to be 1 million dollars a year but it is certainly not less than 50k for a family in this country.

Are Public Employees Overpaid?

Saturday, October 9, AD 2010

If you believe what you read on blogs or hear from certain politicians and pundits, a new kind of haves-vs.-have-nots class war is brewing across the land. Not between the rich and the poor, but between private and public sector workers, as related here.

Scandalous stories of public officials enjoying lavish or disproportionate pay and benefits at taxpayer expense, such as in Bell, Calif., and elsewhere , frequently make headlines and prompt calls for reductions in such compensation.

As with many other economic and taxation issues, the answer to the question posed in the title of this post usually depends on which side of the political spectrum you are on. Conservatives tend to answer “yes,” while liberals tend to answer “no” .

But which side is correct?

Before I delve into that question, I will first make some disclosures.  I am a full-time employee of the state of Illinois, making $35,000 per year. I do not belong to a union, and due to the nature of my job and agency, probably never will. I have only received one raise the entire time I have been so employed (nearly 4 years) due to a promotion to a slightly higher job level. I do not expect to receive any raises for the foreseeable future; in fact a pay cut is a distinct possibility. Prior to that I worked 20 years in private sector employment in the newspaper field. In some instances the pay and benefits were comparable to, and even better than, my current job. In other instances they were not as good.

Now to the question: are public employees overpaid? That depends on who you ask and how one defines “overpaid”. The average pay of state and federal employees in general is higher than that of private sector workers in general. When broken down by education, profession, etc. the picture is not as cut and dried. For lower-skilled jobs requiring only a high school or vocational education — e.g. custodians, receptionists, guards — the public sector pays better, whereas for professional jobs requiring a college degree or higher (attorneys, doctors, CPAs, etc.), the private sector pays more — often a lot more. These articles from Kiplinger and from Governing.com explain the differences in greater detail.

Two of the biggest reasons for these disparities are that 1) public employment tends to have a greater percentage of jobs requiring a college education or beyond and 2) public sector jobs are more likely to be unionized.

Public employee unions are a favorite bete noire of fiscal conservative politicians and candidates at the moment, and much of the public seems to agree with them. The fact that public employees continue in many (though not all) states and localities to enjoy benefits most private employees no longer have, such as regular salary increases, defined benefit pension plans, and caps on health insurance premiums and co-pays, arouses resentment among ordinary citizens who are forced to pay for such benefits via taxation.

Although many officeholders and candidates talk a good game when it comes to reining in public employee benefits, in practice the most frequent targets of budget cutting measures such as layoffs, furlough days and pay cuts, are lower or mid-level non-union employees. They often end up being punished for the sins (real or perceived) of their higher placed or unionized colleagues, simply because they are the easiest targets — not protected by either union contracts or political/personal connections.

The biggest problems on a state and local level are pension deficits — the growing gaps between the amount of money in public pension funds and the amount of benefits those funds are expected to pay in the future. According to this report by the Pew Center on the States, pension shortfalls are fiscal time bombs that threaten to devour entire state and city budgets if nothing is done to defuse them before it is too late.

How did the situation get that bad? In most cases it was due to a variety of factors — yes, generous union contracts played a part, but so did repeated failure on the part of lawmakers to invest properly in public pension funds, demographic changes (aging of the Baby Boomers, people living longer), and investments tanking due to the recession. No one factor can be singled out, and the entire blame for the pension crisis cannot be laid at the feet of one person or group of people. But regardless of who is or was to blame, the problem has to be dealt with, not swept under the rug.

Private sector employees are quick to point out that while they have to support public employee benefits with their taxes, public employees are not forced to do the same for private employees — they can choose whether or not to do business with a private company.

I agree, and this is in my opinion an argument that should be taken most seriously. For that reason, public employees are by necessity accountable to the public and will always be subject to various restrictions and considerations that do not apply to private employees (e.g., their salaries being public information).  This is not “unfair” or unequal, but simply part of the deal one signs up for when working for a government body.

Another claim often made by private employees is that government workers, by virtue of the pay, job security and benefits they enjoy, are artificially insulated from the realities their privately employed neighbors face — the constant threat of being fired or laid off, lack of retirement security, worry about medical bills, etc.

That might, perhaps, be true of top officials/administrators with strong political connections who make six-figure salaries, whose spouses have equally high-paying positions, and whose children or other family members are completely healthy. Otherwise, I am not so sure.

Many public employees, particularly non-union ones, are regularly threatened with layoffs or missed paychecks (most often at the end of a fiscal year). Given the poor financial standing of many public employee pension funds, combined with the fact that some public employees don’t get Social Security, I’d say many of them (including myself) who are 10 years or more away from retirement are just as worried about their retirement as you are.

Also, most public employees do not live in a bubble or a vacuum. Most used to work in the private sector at some time in their lives, and many are married to spouses who work in the “real world” or are currently unemployed or disabled. Their grown children, their parents, their siblings, and their friends and neighbors  include private employees or unemployed persons looking for work. The only exceptions I can think of might be political “dynasty” families like the Kennedys or Daleys. Plus, public employees pay all the same taxes everyone else does — federal, state, sales, property, the whole works. If taxes go up, it cuts into their budgets too.

Just because someone has a government job doesn’t mean they have, or should have, no interest in whether private business succeeds. If factories close and move overseas, if private companies go bankrupt and abolish or raid pension funds, if high taxes drive up the cost of living, if college education becomes unaffordable without taking on ruinous levels of debt — it affects them and their families too. It is in everyone’s interest, no matter what kind of job they have, to have a fiscally sound and honest government, competent public employees, and a sustainable tax structure.

Also, do not forget that for every instance in which a public official received undeserved pay, pensions or perks at taxpayer expense one could probably cite an equally egregious case of a private business executive enjoying lavish pay and benefits at the expense of fired workers, closed factories/offices, or raided pension funds. Greed is greed no matter where it occurs, and no sector of the economy is exempt from the effects of original sin.

Finally, since this is a Catholic blog, we should approach this issue from a religious perspective as well. Christ Himself chose a public employee, Matthew the tax collector, to be one of His Apostles. He also told His followers to “render unto Caesar what is Caesar’s and unto God what is God’s.” So, apparently, He did not believe that working for the government was inherently evil, unproductive or exploitive.

Some more pointed advice was given by Christ’s precursor, John the Baptist, to the public servants of his day who came to see him (Luke 3:12-14):

“Even tax collectors came to be baptized and they said to him, “Teacher, what should we do?”
He answered them, “Stop collecting more than what is prescribed.”
Soldiers also asked him, “And what is it that we should do?” He told them, “Do not practice extortion, do not falsely accuse anyone, and be satisfied with your wages.”

John was referring to practices for which the public employees of the day were notorious — tax collectors often overcharged citizens and pocketed the “profit” they made, while Roman soldiers were known for shaking down citizens of the provinces they occupied for money, food, or other goods. Here John is telling them simply to do their duty, not demand any more of the public than the law requires, and be content with what they are paid. If today’s public officials and employees did the same, there would be a lot fewer problems.

As with most problems in a fallen world, there is no perfectly just way to balance the need for a professional, competent government workforce with that of a private sector free of unnecessary taxes and regulation. This does not mean, however, that we should not attempt to find as just a resolution as possible. However this will require people who are not to blame for the situation to help clean it up, and at considerable personal cost.

For public employees, this means more work for less pay, more out of pocket expenses, and for some, no job at all. For the rest of us it could mean higher taxes, reduced services or some combination of the two. All these things will impact thousands, even millions, of good, hardworking people who are simply doing the best they can and had no part in creating the situation. It may not be perfectly fair, but life ain’t fair.

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18 Responses to Are Public Employees Overpaid?

  • Excellent Post, Elaine!!

    But… I would like to raise a couple of points.

    Also, do not forget that for every instance in which a public official received undeserved pay, pensions or perks at taxpayer expense one could probably cite an equally egregious case of a private business executive enjoying lavish pay and benefits at the expense of fired workers, closed factories/offices, or raided pension funds. Greed is greed no matter where it occurs, and no sector of the economy is exempt from the effects of original sin.

    While I do agree that greed is a problem in some cases, I believe that there are instances where people can be too judgemental of a person who is wealthy or “rich” in the private sector who has been successful in life. Some may perceive a particular “rich” person as being greedy but in actuality that person may give to causes and foundations but we just may not know about it. Maybe, they want to donate and not have it spread across the news? Both envy and jealousy are also sins.

    In the private sector businesses usually either make it or they don’t, whereas with the public sector the workers or that particular government program can pretty much count on being bailed out, and if “needed” taxes will be raised or a new tax will be implemented without having the taxpayers consent, in most cases. Plus, the private sector doesn’t usually get bailouts as they did under Bush and Obama. And, that was only a few companies.

    Private sector jobs do not force people to patronage them like the public sector demands taxpayers to pay taxes to be subsidized by the public. Yes, the “little guy” usually draws the short straw and is the one to pay. While I believe that layoffs are a terrible thing, do you honestly think that a successful entrepreneur who started his/her own business, been in business for a number of years,and is being affected by the downturn should be the one to “pay” the consequences of downturn? The business person/owner may not be the employee who is being layed off, and probably doesn’t want to layoff any employees but in actuality he may feel compelled to layoff some employees just to keep his/her business afloat in tough economic times.

    When I lived in MD, the property tax prices were skyrocketing ( one lady’s taxes went from $300 to $900 in one year) because of how much the teachers and government bureaucrats in the Dept. of Education were being overpaid so the taxpayers voted on a ballot initiative to limit their increases to 2% per year. I believe there needs to be a cap on the amount of pay increase that ALL public sector employees may receive each year- maybe at 2%?

  • I’m not saying that ALL private sector layoffs are evil or motivated by greed, but mainly thinking of those really infamous cases like Enron or cases that involved actual fraud or embezzlement.

    Mainly I’m just saying that I’d prefer not to see the same kind of class warfare rhetoric that conservatives find so offensive when applied to the private sector rich in general, being applied to public sector workers in general — i.e. demonizing them as all lazy, unproductive, corrupt, etc, the way liberals do to the “rich.”

  • While this post displays a sense of justice toward individuals whether they be employed by the public or private sectors it also seems to operate on the premise that their is some level of equivalency between the two.

    From an economic and social justice perspective the goal ought to be minimizing the number of government employees and maximizing the number of private sector employees. How we get there can be debated but this needs to be the fundamental premise.

  • The use of “their” should be “there” in the above post.

  • I’ve been in the civil service for 16 years. During most of that time, study after study showed us to be greatly underpaid for our work. During the Clinton Administration – a period of unparalleled economic prosperity – the Administration repeatedly sought to limit pay and benefits increases because the government sought to pay down debt. Until quite recently, getting candidates for other than starting-level jobs has been quite difficult.

    I’m not complaining. I believe that I am paid fairly for my work. However, the present complaints about civil service pay are really quite silly. Most of our jobs were scarce sought after during better economic periods. It is only during economic downturns that people are anxious for public sector employment.

    Really, this has nothing to do with pay… It has EVERYTHING to do with uncertainty. The complaint is spurred by the uncertainty of the private sector. Job uncertainty is terrifying and unpleasant and many feel that it is just not fair that the public sector has job security. I’d wager that lower wages would not make those complaining feel any better. They feel like we need to be punished. We need to suffer job uncertainty. We need to fear the loss of our station in life if “fairness” shall reign. In other words, everyone should suffer together.

    It is hardly a Christian sentiment but is surely is a human one.

  • “At a time when workers’ pay and benefits have stagnated, federal employees’ average compensation has grown to more than double what private sector workers earn, a USA TODAY analysis finds.
    Federal workers have been awarded bigger average pay and benefit increases than private employees for nine years in a row. The compensation gap between federal and private workers has doubled in the past decade.

    Federal civil servants earned average pay and benefits of $123,049 in 2009 while private workers made $61,051 in total compensation, according to the Bureau of Economic Analysis. The data are the latest available.

    The federal compensation advantage has grown from $30,415 in 2000 to $61,998 last year.

    Public employee unions say the compensation gap reflects the increasingly high level of skill and education required for most federal jobs and the government contracting out lower-paid jobs to the private sector in recent years.

    “The data are not useful for a direct public-private pay comparison,” says Colleen Kelley, president of the National Treasury Employees Union.

    Chris Edwards, a budget analyst at the libertarian Cato Institute, thinks otherwise. “Can’t we now all agree that federal workers are overpaid and do something about it?” he asks.”

    http://www.usatoday.com/money/economy/income/2010-08-10-1Afedpay10_ST_N.htm

  • In my above post “patronage” is supposed to be “patronize”.

    @Donald

    You make an excellent point! Why is there so much disparity of pay between private sector and public sector jobs? And, these days much of what the government does is filled with wasteful projects, and the money could be allocated in a much better fashion.

    @Elaine

    While some government employees are not corrupt and unproductive others are indeed corrupt and unproductive ( I am in no way saying you are corrupt or unproductive). There isn’t really class warfare being engaged by those criticizing the employees pay in the public sector but rather taxpayers are wanting our monies to be allocated properly, and not wastefully used on excesses, as is happening in our government Today. When the taxpayers are responsible for subsidizing those who work in the public sector and not those employees in the private sector than it isn’t a double standard to criticize one group and not the other. There are different circumstances and relationships involved between the taxpayers and these two groups of employees.

  • I’m a private sector employee in a sea of public sector employees. On the one hand, it isn’t exactly fair to compare government workers to private employees when they are, on average, more highly educated. Something like 80 percent of the population in the DC metro area have some form of graduate degree, and obviously many of these work for in the public sector. Based on education and experience, I would say the public sector compensation is largely fair.

    That said, there is a comfort level that public sector employees enjoy that those in the private sector do not. While strictly speaking it’s not impossible to be fired, it is a bit more difficult to get the axe if you work for the government at any level. Are many public sector jobs superfluous? Yeah, and I say that as someone who had such a job back when I still lived and worked for the city of New York. We had pretty much an entire agency where five people could have done the job of the 30 or 40 of us that were there.

    I think the question isn’t whether public sector employees are overpaid (they’re not), but rather whether or not there are simply too many of them (there probably are).

  • A good analysis of the comparison of public and private compensation:

    http://reason.org/news/show/public-sector-private-sector-salary

    I think differing education levels between public and private employees are somewhat misleading. I have a secretary who has been with me for 25 years. She is a high school graduate. She is also bright, hard working, a superb organizer and an excellent learner. She manages my office and assists me with the litigation portion of my practice. During the past 25 years she has attained a good practical grasp of legal procedures. I have no doubt that if the roles she fills were staffed according to federal job procedures, I would have at least two employees, one with an Associates Degree and the other with a BA. In the private sector my secretary has the skills and the jobs but not the educational credentials.

  • I think the question isn’t whether public sector employees are overpaid (they’re not), but rather whether or not there are simply too many of them (there probably are).

    Paul’s conclusion is correct. I recently began working for the federal government, and the problem isn’t so much that federal workers are overpaid and lazy, but that there are way too many statutory requirements driving their workload.

    Let me give you an example:

    A story hits the newspapers; the Dept. of Defense paid $700 for a screwdriver. Never mind the fact that this is probably mostly a fluke of cost averaging in some account ledger; Joe Q. Taxpayer is outraged! Our Congresscritters listen; they pass a law called the Defense Acquisition Workers Improvement Act (DAWIA – Google it, if you’ve never heard of this lovely). Henceforth, all federal civilian workers in the defense contracting field must take five bazillion hours of training in How Not To Pay $700 For A Screwdriver. Congratulations, America – you’re now paying $100,000 to save $695 on a screwdriver.

  • I think NRO recently looked at this. As noted public employees tend to be better educated. Part of this is certain govt. programs that reimburse for classes thus encouraging better education. Controlling for better education (as well as a number of other factors noted) public employess still make about 12% more than private sector employees.

  • “Henceforth, all federal civilian workers in the defense contracting field must take five bazillion hours of training in How Not To Pay $700 For A Screwdriver.”

    The running joke of the last few years among State of Illinois employees is the so-called “ethics test,” an online training tool in Q & A format which all workers have to complete once a year. When you complete it, that fact is registered electronically and you also have to print out a certificate to sign and present to your supervisor.

    Many of the right answers are or should be obvious to anyone with a modicum of common sense and honesty, and it could easily be completed in about 10 minutes by experienced State employees who are familiar with the subject matter, questions and answers. However, there have been cases of employees “flunking” the test — not being registered as having completed it — because they completed it that quickly. In order to avoid this, many workers resort to dilatory tactics such as taking coffee or bathroom breaks in the middle of the “test” so they don’t finish it too fast.

    Of course, the biggest irony surrounding the ethics test is that it was instituted by Governor Hairdo as a way of demonstrating his commitment to reform in state government.

  • This is a very good article and discussion.

    With regard to education, we have a big problem in this country revolving around discrimination law. An employer doesn’t look for the best person for the job; he looks for the person he can document is the most qualified person for the job. The bigger the organization, the greater the priority on quantifiable credentials. The open secret is that degrees don’t make you a better worker. But HR isn’t looking for better workers.

  • Oops. Let me finish that thought. I’d like to see less consideration of a person’s academics in determining his wages. Under our current thinking, it’s reasonable to have the best-educated workforce the government can get, and it’s reasonable that they should be paid more on the basis of their education. But that way of thinking is wrong. Ultimately, it’s unjust.

  • Elaine,

    The economic consequence of this kind of legislation (whether it’s your ethics example or my DAWIA example) is that it takes time away from doing actual work. Unless there’s a corresponding return on that training investment (which I strongly doubt), it’s spending more dollars than dollars saved. Marginal cost exceeds marginal benefit. And it requires that the government hire more FTEs for the same amount of work.

    Why not do a better job of screening new hires in the first place? In my experience, that’s what the private sector does better. They don’t require their employees to take hundreds of hours of training because they’re confident that they’re getting people with the right experience or, at the very least, are smart enough to figure out their new jobs. My #1 complaint (so far) working for the government is, they don’t treat their people like adults. Sometimes that attitude is deserved, but for most of us, it’s insulting and wastes our time. I have graduate degrees and 12+ years of professional work experience; do I *really* need to take that course in report writing???

  • I’d like to see less consideration of a person’s academics in determining his wages.

    Ideally, public sector wages would have some relationship to value marginal product of labor. But how do you measure government “output?” If the federal agency that employs me were eliminated tomorrow, the Earth would go on turning just fine. However, it’s also likely that we’d see fraud, waste, and all sorts of bad outcomes creep up over time if went to a completely self-policing regime. So our “product” is probably worth something more than $0 and less than the hundreds of millions of dollars budgeted for it.

  • Most of us know public sector and private sector employees who are overpaid and others who are underpaid. It is people who may or may not be overpaid.

    Recalling E.F. Schumacher somewhere in Small Is Beautiful, only something like 4% of modern society actually produces something tangible of real worth. The remaining 96% of us sell it, warehouse it, advertise it, account for it, legislate about it, sue about it, transport it, broadcast about it, blog about it, keep tabs on it, deal with warranty claims about it, stock and shelve it, scan it, accept payment for it, put it on layaway, display it, and on and on. Most of us work in a world of electronic digits. Actually productive citizens are few and far between, says Schumacher. I think he’s dead right.

  • Update: New Washington Post poll shows majority of Americans believe federal employees to be overpaid and less hard working than private sector workers:

    http://www.washingtonpost.com/wp-dyn/content/article/2010/10/17/AR2010101703866.html?wpisrc=nl_politics

Twirling, Twirling Towards Freedom

Wednesday, October 6, AD 2010

On Monday night there was a debate between Connecticut Senatorial candidates Richard Blumenthal and Linda McMahon.  During the debate Linda McMahon asked Mr. Blumenthal, “How do you create a job?”  Blumenthal’s answer was, well, see for yourself.

Watching this, I couldn’t help but be reminded of another example of genius on display.

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12 Responses to Twirling, Twirling Towards Freedom

  • The frightening thing is that Mr. Blumenthal is merely a reflection of his party. I doubt more than 2 out of 10 congressional Democrats, and 0 out of 1 Oval Office Democrats, would have been any more successful in answering the question than Mr. Blumenthal was.

    Even among Democrat governors, who should at least know SOMETHING about job creation, I see little evidence that more than a handful could have coherently answered the question posed by Mrs. McMahon.

    An entire political party made up of people who, on the one hand, hate employers, but, on the other hand, claim to love jobs, and without a clue about how said jobs are created.

  • “McMahon slams Blumenthal into the turnbuckle–and he’s looking dazed!”

  • Mr. Anderson’s proportions are precise.

    Upstate New York has a congressional delegation of eleven. Ten are Democrats. Of the ten, precisely one was a businessman; one other has some academic background in economics; a third was a professional musician who had some exposure to the business world. (The solitary Republican is a businessman, wouldn’t you know).

  • As someone who has to answer questions on the spot in public for a living, I don’t really think that fumbles like this signify much. Frankly I’m amazed that it doesn’t happen more often.

  • Miss South Carolina has a great future ahead of her in politics. Like Blumenthal she didn’t let raw ignorance stop her from blathering on.

  • Oh, no!

    Lessee: tax, no that doesn’t sound right; regulate, no; pay for abortion, no; ban oil drilling, no; call a union boss . . .

    Oh, yeah! When I came marching home from Vietnam . . .

  • Linda McMahon is exactly right.

  • the thing about truth… you don’t have to memorize it, its always there.

  • Blackadder, about 70% of the man’s work history has been in public employment. Another 17% has been in law practice, specifically as a trial lawyer. (That particular firm now does commercial and real estate law as well). He spent one year as a newspaper reporter. Summer employment and part-time employment between 1961 and 1973 would make up the balance. Newspaper reporters (per Stanley Rothman) often consider themselves the antagonists of the business community and that sort of self-understanding is evident from his career as Attorney-General of Connecticut. That he could not answer the question is no accident. He thinks of the business community as shady characters out of whom you extract fines.

  • If character counts in Connecticut, and I by no means conclude in the affirmative (having spent a number of years in/around the state some two decades ago), then the man is toast. Whether or not he can succinctly (or at all) answer the job creation question, his character is warped by persistent fabrication. In no way could I begin to form the words in my mouth “We’ve come a long way since the days I served in Afganistan…” Because I have never been anywhere near the place, this simply couldn’t accidentally escape my lips.
    This man is not a gaffe machine, he is a depraved liar.

  • The sad thing is, McMahon did no better. She had her stump speech talking point memorized very well, but a third-grade understanding of economics is OK only if you’re still in the third grade and not running for the US Senate. Both sides pandering to and betting on our ignorance: no wonder this looks like a race to the bottom. Is this the best Connecticut has to offer?

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