Feed the Rich

by publius

Steve Benen informs me that John McCain will not be voting for the stimulus in its current form.  McCain would prefer more business tax cuts and to make the Bush tax cuts permanent instead.  In short, McCain prefers a bold “Leave No Rich Person Behind” response to our economic crisis.

McCain’s priorities – while unsurprising – reminded me of another problem I had with Beinart’s op-ed last week.  Beinart, remember, argued that Democrats shouldn’t let the Republican incompetence of the past few years transform them into blind partisans.  He noted that Republicans were right in the past on some issues, and will inevitably be right again in the future.

On some level, this is of course very sound advice.  There are lots of smart, reality-based conservatives out there (Eric cited a few this weekend).  And we should always be willing to challenge our own premises, rethink our positions, etc.

But that said, Beinart has drawn the wrong lesson from recent history.  Beinart’s fear is that Democrats will ignore Republicans too much.  My fear is just the opposite – I’m afraid they won’t ignore them nearly enough.

To be clear, I’m not saying it’s good to ignore conservative critiques, particularly on the stimulus.  The problem, though, is that smart conservative policy critiques are generally confined to powerless pundits who have had exactly zero influence on elected Republican legislators and the GOP institutional machinery more generally.

The policy recommendations of the institutional GOP, by contrast, can be more safely ignored.   They aren’t “serious,” but instead reflect a slavish devotion to the rich and business interests above all else.  The individual legislators may subjectively care about other things, but their actions – the fruit by which ye shall know them – are only about redistributing more money to rich people and businesses.  That’s all they care about.

The Palin wing – and the table scraps of power thrown to them to secure their votes – are a concern of course.  But they aren’t (and weren’t) driving the ship.  Looking back, what actually got done by the GOP Congress and Bush administrative state was a steady and successful effort to redistribute more money to the very top (which includes things like selective regulation or targeted deregulation). 

If, however, the GOP came out and offered something sincerely intended to help struggling working families (a la Douthat), that’s something Democrats should listen to – and answer.  But that’s not at all what’s going on when you hear people like Cantor and McCain.  Even now – even after a stinging defeat and an economic recession – it’s still rich people first.  It's always rich people first.  (On an aside, Lawrence Mishel at EPI notes that the previous two rounds of tax cuts have not provided anything close to the promised stimulus).

I understand Obama’s outreach to the GOP – and I think it’s smart.  But it doesn’t mean that the rest of us need to be as restrained.  Wielding a few pitchforks ain’t necessarily a bad thing right now.

Comments

[KCinDC]

We get to see now how much that dinner honoring McCain was worth. So far it looks like not much.

[Turbulence]

McCain might not have been the target of the honoring McCain dinner. Obama might have been targeting the media pundits who fetishize bipartisanship and tremble at the thought of disagreement. These people are not very bright so pointless gestures like a dinner with some platitudes might be enough to convince them.

[publius]

i actually think mccain *could* become a key ally. But it sort of depends on mccain. he can live out his career achieving nothing, but voting with leadership on everything. or, he could really try to get some legislation passed.

if were willing to play ball, i suspect obama and dem leadership would give a significant amount of concessions.

i wouldn't count on it though -- the victories are going to come from votes from people like specter who feel political pressure at home.

[d'd'd'dave]

It seems to me that there are two needs presently. One need is for strengthening the safety net so that it can withstand the increased demands an extended recession brings. The other need is to increase commerce in some way.

I believe it is entirely appropriate and necessary to do the first thing. Let's extend unemployment benefits, do some retraining, food help, medical help, etc. But I don't think of this as 'stimulus'. I think of it more as 'survival' or 'maintenance'.

When I hear the word 'stimulus' I think of the second need - to stimulate commerce. In that regard I think of spending money on projects that make investment sense in the longer term. This might include building roads, dams, power plants, research facilities. Perhaps it would also fund some basic research. In my view, these are things that pay more money back in the long run than they absorb in the short term. These types of projects could be seen as putting money in the hands of businesses and the rich because business would probably do the work and the rich are associated with businesses.

Some of publius' words ring a sour note to me:

//their [GOP legislators] actions – the fruit by which ye shall know them – are only about redistributing more money to rich people and businesses. That’s all they care about.//

and

//when you hear people like Cantor and McCain. Even now – even after a stinging defeat and an economic recession – it’s still rich people first. It's always rich people first.//

The note is sour to me because both things are needed. Publius points to republicans and seems to suggests all they want is to fill the second need. At the same time, he seems to point only at the first need as worthy. He says, //If, however, the GOP came out and offered something sincerely intended to help struggling working families (a la Douthat), that’s something Democrats should listen to – and answer.// If both programs are needed and each side just wants one then both sides are equally wrong.

Another thing has been discussed in the media and that is putting money directly into the hands of the people via refundable tax credits or tax cuts. The idea is that it is quicker than infrastructure. To me this is not commerce or investment. It is just a transfer of money from one person to another. In my opinion, this program shouldn't happen at all.

[publius]

ddddave - fair points. i think my final conclusion is that i just want the money to go where it will have the most effect. if that's tax cuts, great. if it's public investment, great.

as for tax cuts as stimulus, I'm not opposed in all circumstances, but i think they should focus on working class income levels b/c they're more likely to spend rather than save.

but more generally, i think that public spending and the types of things you outline above (unemployment, food stamps) are excellent b/c they give you a lot of stimulus bang for the buck.

i guess the sour notes you list is just a frustration that (in my opinion) the cantor policies aren't genuinuely intended to stimulate the economy but to help richer people. (I suppose the good faith, non-cynical version is that they believe in trickle-down. But surely the housing market crash and effects of last tax cuts have put the final nail in that coffin).

[Gary Farber]

"Another thing has been discussed in the media and that is putting money directly into the hands of the people via refundable tax credits or tax cuts. The idea is that it is quicker than infrastructure. To me this is not commerce or investment. It is just a transfer of money from one person to another. In my opinion, this program shouldn't happen at all."

A question and a point:

a) How is this different than Bush's tax cuts? (Which, of course, perhaps you opposed.)

b) If you give a tax credit, or outright cash, to poor people, they're going to spend it, because they have to. That's as sure a stimulus as there is.

And a question: Why is this a bad thing?

[GoodOleBoy]

d'd'd'dave,

How is a refundable tax credit or tax cut a transfer of money from one person to another? It seems to me it is money that is never taken away from the party who earned it. For small businesses, this money is frequently how we create new jobs. The major policy criterion to be used for the stimulus is job creation, is it not?

[kla]

I find it astonishing that republicans walk around like normal people and happily admit they are republicans. To normal people it would be mortifingly embarrassing. The one place they can hold their head up high is of course Washington where they are surrounded by democrats. Democrats have shown a touching devotion to republicans more hopeless initiatives. Why the current sec of state herself supported our current wierdwar in the ME. Only among democrats do republicans look less bad than they really are.

[Phil]

"Elections have consequences." -- John McCain, Oct. 15, 2008.

We've been hearing that drumbeat from Republicans since at least 2004, maybe since 2001. Perhaps John McCain should have won the election if he wanted to more in control of this process.

[bobbyp]

So, dddddddDave is opposed to policies that simply transfer money from one individual to another? One suspects this principled stand is taken only when said policies transfer wealth from the rich to the poor, but not the reverse....which, by the way, has historically been much more the case.

Dave, I ask you to read "The Conservative Nanny State" by Dean Baker. Coddling the rich has historically been the norm.

[bedtimeforbonzo]

When John Kerry lost in 2004, I don't remember Republicans placing much importance on his post-election pronouncements.

And Kerry did not run a petty campaign like McCain.

McCain got his dinner. But I'd have to think his influence in the Senate is minimal after his humbling, out-of-touch defeat.

And if the best he can do is pedal Bush's "Leave No Rich Person Behind" legacy, to borrow publius' termed, I'd pay the guy no mind.

"I won," Obama told the GOP behind-closed-doors last week.

"You lost," is a message McCain needs to understand.

[OCSteve]

McCain would prefer more business tax cuts and to make the Bush tax cuts permanent instead. In short, McCain prefers a bold “Leave No Rich Person Behind” response to our economic crisis.

Do you want to qualify “business” at all? I mean I don’t favor tax cuts for IBM or MicroSloth or Oracle… But small businesses create the majority of private sector jobs and they are hurting right now.

In this regard, President-elect Obama and his economic team should think carefully about what role they want small business to play in their "bottom-up" stimulus effort. If the goal is to save existing jobs and create new ones, small business -- as the major source of private-sector job creation -- needs to play a major role. The trick will be for the new administration to find ways to help small business reverse its job-shedding and capital-spending-reduction habits of 2008, and in doing so, help spur the larger economic recovery.

I suggest that the most effective stimulus right now would be a 2 year tax holiday (excepting payroll taxes) on every business in the country with profits of less than $500k.

[Jay C]

@ Turbulence, 10:25P

Minor edit:

McCain might not have been the target of the honoring McCain dinner. Obama might have been targeting the media pundits who fetishize bipartisanship and tremble at the thought of disagreement with Republicans.

Fixed.

[hairshirthedonist]

Wouldn't putting money in the hands of less well-off people who would, as Gary noted above, have to spend it be a big help to small businesses? I suppose it might be more of a help to, say, Walmart and the like, so I'm not sure.

[cleek]

"You lost," is a message McCain needs to understand.

it's a message the media needs to understand, too. McCain's not giving himself media coverage, after all.

[bedtimeforbonzo]

Right, cleek.

And that won't be easy for a media that loves to kiss McCain's ass and ride the "Straight Talk Express."

Of course, the Sunday show he was on yesterday was FOX. Does that count?

Poor FOX. The net seems as out-of-touch as McCain.

[Sebastian]

"In that regard I think of spending money on projects that make investment sense in the longer term. This might include building roads, dams, power plants, research facilities. Perhaps it would also fund some basic research. In my view, these are things that pay more money back in the long run than they absorb in the short term."

These projects may have merit on their own, but they are almost by definition NOT stimulus in any sense that has to do with spending more in a recession to keep the economy going. None of that is the immediate push that you need.

As it happens McCain is right about business tax credits/refunds/temporary cuts but wrong about the Bush tax cuts. The Bush tax cuts are not stimulus and have nothing to do with the issue at hand. A broad (which is to say middle class) tax refund/credit would be stimulus because it would put money in the hands of people more likely to spend it than the Bush cuts. It doesn't help poor people much though, as they don't pay much in taxes.

That is where extended unemployment benefits might come in or programs in that vein.

[Bernard Yomtov]

OCSteve,

I know it's widely claimed tha small business creates the majority of the jobs in the country, but I've never seen the support for that claim, and I have also heard it questioned. Do you have some data on the point?

I myself am dubious about tax cuts for business to encourage hiring because I don't think they really address the problem. Give businesses all the tax cuts you want, but they won't expand unless they see a solid demand for their products. If your factory is running well below capacity you are not going to add shifts, or buy additional equipment, if you don't think you can sell the output, tax cut or not.

From your (OCSteve) link:

With revenues declining for nearly half of small-business owners, many owners have cut back on their capital spending..

and

Falling revenues have also forced small-business owners to cut jobs.

Falling demand, not the tax burden, is the source of the problem. Stimulate demand, and you get investment.

[ThatLeftTurnInABQ]

A couple of points:

It seems likely to me that McCain will be an ally or opponent of the Obama admin on an issue-by-issue basis. Just because he isn't playing ball on the economic stimulus (not surprising IMHO - insofar as he thinks much about economics McCain seems to be firmly in the Austrian camp) doesn't mean that the dinner was a wasted effort. He may be an ally on other issues, such as torture.

With regard to the economic stimulus, there are a lot of issues to untangle. One of them is:

How long will the Recession/Depression last?

Infrastructure spending (regardless of its long term merits) would not make much sense in a short downturn (e.g. a conventional 18-month recession) because of the ramp-up time to get those projects going. The longer we expect this downturn to last, the more sense infrastructure makes as an economic stimulant. IMHO I expect at least 2-3 years of >5 percent GDP decline followed by a very slow and sluggish recovery lasting at least a decade. In that scenario large infrastructure spending is a wise investment.

In the longer term, how potentially inflationary are the monetary and fiscal policies we are pursuing, and what is our strategy for taking our collective foot off the gas pedal at the right time?

See here for an interesting discussion of several of these issues.

Lastly, if we got into this mess at least partially as a consequence of very large scale imbalances in global trade (Yves Smith has been flogging this horse, very persuasively IMHO) which are inherently unsustainable, then how do we move towards a more sustainable regime, both with regard to depletion of primary resources (e.g. oil) and the consequences of rapidly using them (e.g. global warming) and with regard to production/consumption imbalances, both globally (e.g. China vs. US) and domestically (e.g. the FIRE sector is too big to be sustainable here in the US).

I'm concerned that many of the short term economic stimulus solutions being proposed to deal with the downturn here in the US work by trying to further sustain these imbalances (especially the last set), and thus are more likely to fail as a result.

For example any stimulus plan which tries to boost consumer spending on low value-add manufactured goods is likely to stimulate the Chinese economy as much as the US economy. This criticism applies to any scheme which is directed primarily as support for middle class consumer spending, whether via loan jubilees, tax reductions, or direct govt. spending. IMHO these programs will prove to be disappointing in terms of their purely domestic multiplier effect as a result, unless they occur in the context of a trade war (via some combination of currency manipulation and/or tariff barriers) which stimulates US domestic manufacturing at the expense of our trading partners - who are also our primary financiers (oops! That could be a bit of a problem).

In short, we are in a bit of a trap, like falling into a snare which tightens as we thrash about trying to get out of it.

[KCinDC]

He may be an ally on other issues, such as torture.

You are correct, of course, but the fact that McCain is joining in the demagoguing against closing Gitmo is not a good sign on that front.

[bedtimeforbonzo]

ThatLeftTurnInABQ: Just wondering. For any stimulus plan to work -- short, long, whatever -- doesn't the Obama Administration first have to get its arms around the mortgage crisis, the shaky ground on which today's Great Recession was built?

[ThatLeftTurnInABQ]

@KCinDC,

Awww crap. I was hoping for better than that from McCain.

@btfb,

I'm inclined to see the mortgage crisis as only one facet of a much larger credit bubble/deflationary spiral. I don't know if a workable solution can be conjured up which doesn't address housing costs, but I don't think just fixing the housing sector will be enough to get the economy back on track.

CalculatedRisk has pointed out that housing is normally a leading indicator with regard to both recessions and recoveries - it leads going in and leads going out of a recession. That means that we won't see a sustainable recovery until we need to build more homes. Given the overhang of existing inventory, that is going to take several years at least, possibly as long as a decade, before we need to build on a large scale again, unless the population grows more rapidly than expected for some reason.

In the meantime, numerous other debt bubbles are still a problem. Not only is the main part of the Alt-A bubble in residential real estate due to hit later this year, but commericial real estate loans are crashing, and credit-card/auto-loan debt is unwinding, all at the same time.

All of this means that IMHO the Keynesians like Krugman have a point, but I think any stimulus applied to the US economy is likely to leak out into other economies as well so long as our global free trade regime remains in place. Perhaps that is the price we will have to pay for getting other countries to finanace our fiscal deficit.

What worries me is that I think this crisis was triggered in part because we reached the point where the US economy cannot sustain any more increase in our per GDP level of debt (counting public + private debt we're currently at about 350 percent of GDP), and most of the solutions I'm hearing about involve increasing that debt burden, not shrinking it. I'm afraid that this may be one of those particular cases where the Austrians are right and the Keynesians are wrong, even though under more normal circumstances I'm more sympathetic to the arguments of the latter (than the former).

[d'd'd'dave]

My objection to the refundable tax credit / tax cuts element of the stimulus is based on a broader notion. I still fundamentally believe that the government should restrict it's involvement in the economy to regulatory measures. It has no business trying to manage or stimulate commerce. Any attempts by it to do so will only artificially distort whatever equilibrium the market eventually finds.

In my view, infrastructure and safety nets are entirely appropriate fields for the government to play. But why should the government to just hand out cash? Where will it get the cash? Borrow? The government already owes more than it can pay comfortably. Print money? Distorting the money supply will only destabilize the economy and complicate it's search for equilibrium. Raise taxes? Seems counter productive.

If you want to reconfigure the tax system to make it more progressive then do it. (I won't like it). But don't do it under the guise of 'stimulus'.

[d'd'd'dave]

I think TLTABQ at 12:58 PM is right on the mark.

He/(she?) asks: "How long will the Recession/Depression last?"

I don't know but I would like to make an off topic prediction. In my humble opinion, we've hit bottom or are near to it (in a pricing sense in this country). Home prices have begun to stabilize. Home lenders and consumers will start to find their footing now. There are obviously going to be continuing repercussions of the 4th quarter disaster. The effect of bankruptcies and layoffs will roll through the economy for awhile. At least now there is a footing (in a price finding sense) for a new equilibrium to be established.

As a side note, and with reference to the linked article, I think it is a once in a lifetime opportunity to buy land zoned for multifamily development. Land prices have been absolutely slammed down. The traditional buyers have weak hands at the moment. Price inflation and wage inflation are undoubtedly coming. Both are drivers of rent increases. The infrastructure of single family home lending (fannie, freddie, mortgage backed securities, etc.) has been discredited and will be weakened for a long time. Ergo single family development will advance only slowly. Multi-family projects will have to absorb the demand that the single family market cannot. There will be strong inflationary pressure and supply/demand pressure on rents. I think five or ten years from now we'll look back on the next 6 months or year as a golden age for buying things.

Oops. Here's the article link I mentioned:
http://seekingalpha.com/article/116297-evidence-that-big-inflation-is-coming?source=feed

[d'd'd'dave]

Can someone tell me how to do a link properly?

[ThatLeftTurnInABQ]

d'd'd'dave,

The best argument I've come across in favor of tax cuts/rebates is that if/when/(hopefully sometime soon) we switch over from a deflationary environment to an inflationary environment, the fiscal and monetary authorities will need some way to reverse course, and to do so relatively quickly since we probably won't even realize that we've reach this point until inflation is already well underway and hyperinflation is a risk. Tax cuts (or so this argument goes) are easier to stop or reverse than infrastructure projects - do you really want to stop spending halfway through the completion of a bridge?

I'm a little skeptical of this argument as while I can see that tax cuts might be easier to adjust quickly in a purely administrative sense, I think it is going to be very politically difficult to reverse them (aka a tax increase), especially if the economy seems to be turning around at that point.

I think this is an area where the econ people and the political people don't communicate very well about what is possible/likely/able to work in each other's sphere of expertise, and we need better communication across these boundaries of interest. I've been trying for some time to suggest that we need to bring back the term "Political Economy", and encouraging political and econ/finance folks to read each other's blogs.

Krugman recently highlighted an interesting analogy (via Mark Thoma) comparing the stimulus plans to a driver attempting to get their car to run up a steep icy hill. The point is that you don't want to be too timid and stall out halfway up and then slide back to where you started from with nothing to show for it. Some of his commentors however brought up an additional point - what happens when you make it to the top of the hill (in this analogy) and find an equally icy and treacherous slope heading down the other side? In that case it seems kind of important to crest the top of the hill with minimal speed and some control over the vehicle.

I think that is the dilemma that our policy makers are grappling with now - how to deal with deflation without baking in uncontrollable hyperinflationary forces later. We really do need a Goldilocks solution - neither too hot nor too cold, but just right.

[Gary Farber]

"Can someone tell me how to do a link properly?"

Yes.

Oh, you want someone to do that. Why didn't you ask?

But here you go.

[d'd'd'dave]

// Given the overhang of existing inventory, that is going to take several years at least, possibly as long as a decade, before we need to build on a large scale again, unless the population grows more rapidly than expected for some reason.//

I believe the overhang is smaller than you think. I believe that buyers have not been lacking - it's just that they've been standing on the sidelines waiting for prices to stabilize. In my area, the median price of sales seems to have stabilized at a level where the payment is about 38% of the median income. A year ago it was 61% of median income. The number of homes trading now is running 2.5 times what it was a year ago. The market is moving.

Not all areas will be the same, of course. Out-migration would change things. The population in my area has been stable during that time.

[russell]

I suggest that the most effective stimulus right now would be a 2 year tax holiday (excepting payroll taxes) on every business in the country with profits of less than $500k.

I'm not against something along these lines, but IMVHO if you want to use tax policy to incentivize particular behaviors, you need to be more specific than "no taxes".

If we want businesses to hire folks and/or keep the folks they currently employ, tax breaks should target that, specifically.

If that's not our primary goal, fine, then we should incentivize whatever it is we *do* want folks to do -- spend money on capital improvements, whatever.

One possible response to an absolute tax holiday is "put the money I would have paid in taxes for two years in the bank, then shut the doors and retire". Nice work if you can get it, but I don't want to pay for it.

[ThatLeftTurnInABQ]

Points of discussion:

Debt-to-GDP ratios and the stimulus at Balloon-Juice and Matt Yglesias, from a political economy standpoint.

Some data regarding housing inventory:

CalculatedRisk on Dec sales and inventory figures. Note especially the graphs of inventory.

The thing about inventory is that sales do not reduce inventory when the buyers are trading up or trading down from an existing home. Inventory is only reduced when a home is purchased by a someone who is not currently living in an existing home (e.g. renters, young people living with extended family, or new immigrants). This means that you can't simply divide inventory by sales to calculate how long it will take to sell off the existing inventory. Instead you need either a population increase or an increase in the rate of home ownership to reduce inventory. Right now the rate of home ownership appears to have crested after reaching a historic high for the US, and is on the way down. That is why I esimate 3-10 years before inventory levels are reduced to the point of creating price pressure on housing (for the country as a whole) and thus restarting the home building industry. Local markets and YM may vary.

[russell]

Hey, Comcast tells me that we've now seen 50,000 jobs lost in one day.

I'm sure there are good opportunities for bargains if you have some cash, but I don't buy that we're anywhere near the end of this.

[Tony P.]

If you want to reconfigure the tax system to make it more progressive then do it. (I won't like it). But don't do it under the guise of 'stimulus'.

A more-progressive tax structure would be 'stimulus' whether or not it's called stimulus. That's assuming the extra revenue from the more-progressive tax structure gets spent, by the government, on people who make less than $350K per year.

Whether 39.6 cents is too much or too little to pay on your 350,001st dollar, it is definitely not too much to pay on your 3,500,001st dollar. If you do the kind of "work" that pays $3.5M a year, and you decide it ain't worth "earning" your next million because the IRS will take 50% of it, fine. There are plenty of people who will gladly replace you. The economy will not suffer on the "supply side", and will benefit on the "demand side" from the government spending.

The standard argument that higher marginal rates at the top will cause talented people to withdraw their valuable labor from the market sounds plausible only in the abstract. Would Rush Limbaugh quit contributing to the economy if his marginal tax rate went up? How about A-Rod, or Madonna for that matter? Would GM or Chrysler, not to mention Citigroup or BofA, have a hard time finding C-level executives to pay millions of dollars a year to, if those executives had to pay higher marginal rates? I doubt it.

--TP

[ThatLeftTurnInABQ]

Would Rush Limbaugh quit contributing to the economy if his marginal tax rate went up? How about A-Rod, or Madonna for that matter? Would GM or Chrysler, not to mention Citigroup or BofA, have a hard time finding C-level executives to pay millions of dollars a year to, if those executives had to pay higher marginal rates?

You mean all those people would stop working and just go sit on a beach somewhere, if we were just to crank up the tax rate on them high enough?

This is sounding more and more like a feature rather than a bug...

[bedtimeforbonzo]

The daily avalanche of job lossses -- see russell's link for today's -- is terrifying and clearly brings into focus that any economic stimulus can't afford programs that won't help people NOW.

[Gary Farber]

But, but, but, this is right kind of stimulus!

[...] Obama was angry that Merrill Lynch used $1.2 million of TARP money to remodel an executive suite. Excuse me, but didn't Merrill have to hire a decorator and contractor? Didn't they have to buy the new furnishings? What's the difference in that and Merrill loaning that money to a decorator, contractor and goods supplier to remodel Warren Buffet's office? Either way, stimulus in the private sector occurs.

Rush Limbaugh couldn't be wrong.

[russell]

The standard argument that higher marginal rates at the top will cause talented people to withdraw their valuable labor from the market sounds plausible only in the abstract.

It's just one in a very long list of popular economic arguments that make less and less sense as soon as you leave the textbooks behind.

My personal favorite is the "tragedy of the commons". Topic for another day, no doubt.

The differences in real income that would occur from any proposal that has actually been made -- low single digit changes in the rate on income above a quarter of million bucks, for example -- are just not believable as a disincentive to make money if you can.

The daily avalanche of job lossses -- see russell's link for today's -- is terrifying

We're unlikely to see it, but a consistent loss of 50K jobs a day is a quarter million jobs a week. A bit north of a million jobs a month.

Yes, that is terrifying. We'd see the wheels come off, and I mean for real.

[ThatLeftTurnInABQ]

We're unlikely to see it, but a consistent loss of 50K jobs a day is a quarter million jobs a week. A bit north of a million jobs a month.

Even more frightening is that almost all of the companies cited in the business report you linked to are in manufacturing or the non-FIRE service sector (retail, IT services, etc.). Those are Main St. jobs, not Wall St. jobs.

I think we are seeing the effects of using the 1st tranche of TARP money as stupidly as possible - Paulson tried to put out fires on Wall St. and did nothing while Main St. caught on fire and is now burning down. Obama and company had better do a better job of it, and in a hurry.

[Sebastian]

"The standard argument that higher marginal rates at the top will cause talented people to withdraw their valuable labor from the market sounds plausible only in the abstract."

That is only because we aren't all using the same definition for 'higher'. If you are thinking 5% higher and the person you are talking to is thinking 20% higher you are talking about two very different things.

But if you believe sin taxes work to dampen use and to increase black-market (i.e. government evading sales) than it is difficult to understand how you can't believe in similar effects from higher tax rates.

My basic argument against highly 'progressive' tax rates is the general principle that wise decisions won't be made so long as you believe that most of the argument is about spending people's money from a class that isn't your own. I also have less problems with progressive taxation down the bracket rather than up it (I believe it is more just for 80% of the taxpayers to decide to raise their own taxes and exempt the bottom 20% than it is for 80% of the the taxpayers to decide to lower their own taxes and stick it to the top 20%). My ideal taxation system would be something like: the bottom 20% pays nothing, this tranfers along a smooth curve EITC-style into the next 10%. The rest is broken into no more than 3 brackets separated by no more than approximately a 20% marginal rate from top to bottom (which is to say that if the bottom non-EITC rate is 10% the top is no higher than 30%). Alternatively you might have a perfectly smooth curve along approximately a 20% spread. In either case, the actual tax rate is calculated year to year based on the previous year's spending (or for administrative purposes it might have to be two years). That way, the tie between spending more and taxing more is made explicit in a way that the current system is not.

[bedtimeforbonzo]

One thing that makes the job losses terrifying is they seem to be so indiscriminate.

Case in point: Home Depot's 7,000 layoffs.

I thought the conventional wisdom was Home Depot and Lowe's would benefit -- or at least not be hurt as bad -- in a slow housing market, the thinking people people would sink money into their existing properties.

Meanwhile, McDonald's seems to be recession-proof.

[Bernard Yomtov]

Sebastian,

One point on your argument about workers withdrawing labor because of higher taxes.

This is not strictly comparable to sin taxes, or other taxes that reduce the quantity of a good supplied.

It's true that a tax increase may cause workers to withdraw labor.

It's also true that tax cut may cause workers to withdraw labor, because they now can earn as much, or more, by working less. So they may take more leisure. The net effect is ambiguous.

A cut in taxes on labor increases income. On the one hand that makes leisure more expensive. On the other the income increase makes us willing to buy more leisure, just as it makes us more willing to buy other things. As a theoretical matter the amount of labor supplied could go either way. (Of course the argument works in mirror image for a tax increase).

But there is another consideration here. We are talking about taxes on labor income, not income taxes in general. A lower tax rate on non-labor income will always tend to reduce hours worked. This effect is not ambiguous. If you suddenly get a big jump in your after-tax investment income because of a tax cut, you're going to work less.

One seldom hears this point advanced in discussions of the effect of various taxes - such as the estate tax - on labor supplied.

(You might want to look up "labor-leisure effect" or "income-leisure effect" for more detailed and possibly clearer explanations.)

[Tony P.]

Sebastian,

When you talk about "80% of the taxpayers (deciding) to lower their own taxes and stick it to the top 20%" you either misunderstand or misrepresent the case I make for progressive-all-the-way-up taxation. The people who make north of a million bucks a year are not remotely the "top 20%". They're more like the top tenth of one percent. The notion that the highest marginal rate must never exceed the marginal rate paid by people making a measly $350K a year is a bit silly.

True, there's something "unfair" about 999 people voting to raise the taxes paid by 1 person. But I can't work up much sympathy for that 1 person out of 1000 who makes a million bucks a year, or that 1 person out of 10,000 who makes multiple millions a year.

--TP

[russell]

it is difficult to understand how you can't believe in similar effects from higher tax rates.

The reason I don't believe it is that it doesn't pass the smell test.

Let's pretend I make $250K/year. If I work harder next year, I can make $350K.

Let's say the top marginal tax rate kicks in at $250K (I believe it is currently much higher than that) and next year we'll raise it, frex, from 35% to 40%.

The argument is that I will not bother working harder to make the extra $100K because I'll only keep $60K, not $65K.

I'm sure there are, in fact, folks out there who just won't go the extra mile because of that $5K difference. I'm also sure that they are not the majority, and that when you factor in all of the folks who will gladly jump in and take their place the net effect on the economy as a whole is, at most, noise.

No, I have no cite. I just know a lot of entrepreneurial people. They'll bitch about the $5K and then they'll get back to work.

Paulson tried to put out fires on Wall St. and did nothing while Main St. caught on fire and is now burning down.

Hey, the hits just keep on coming. Citi just decided to buy it's executives a brand new $50M corporate jet. The older ones, which they have up for sale, were apparently not getting the job done.

(This is from the NY Post, the link's over at Naked Capitalism. Anchor links are acting weird here...)

How much of our money has Citi gotten now? The NY Post article says $45B. How many hundreds of billions of their crap notes are we guaranteeing? $600B+?

Those are big enough numbers that my own, personal, share is probably a sum I'd notice. Enough to buy some clothes, or fill the oil tank, or fix the fence.

My wife and I have a Citi card as our joint household credit card. If we were late with a couple of payments, our interest rate would probably go north of 20%. Immediately.

So these guys want to take my new suit, or my tank of oil, or my fence repair, and spend it on a jet for themselves. But if I, frex, lost my job and fell behind, they'd screw me to the wall.

Here is the heart of the matter, to me. The problem is not Fannie Mae and Freddie Mac, or CDS's, or leverage. The problem is that the financial industry, and high level corporate management generally, have lost all perspective on their purpose in the economy, have lost any sense of decency concerning the rewards that are due them, and have lost any notion whatsoever of obligation to the society around them.

They have become a corrupt, parasitic class, dedicated to enlarging and preserving their own, personal fiefdoms and entitlements, and they operate in a culture that does nothing but support and reinforce them in that pursuit.

I'm coming to the view that capitalism, as we practice it in this country, is a dead man walking. It's a dead man walking because of people like the executives at Citi, and because there is no institution left in this country with the sap to stand against them and tell them to f*** off. So they've managed to evaporate the wealth of the nation, and they're not done yet. There are still planes to buy, apparently.

I'm ready for European style democratic socialism. It sounds absolutely splendid to me. Will there be inefficiency and corruption? I'm sure there will, but it won't hold a patch to what we have now.

And in my experience, government wins hands down over private corporations when it comes to accountability and responsiveness.

Seriously, there have, literally, been revolutions over less than this. People have, literally, had their damned heads chopped off in public for less than this. Governments have fallen for less.

This is no joke anymore. We're walking a knife edge, and these guys want to take your money and mine and buy themselves a plane.

f*** them.

[d'd'd'dave]

//We're unlikely to see it, but a consistent loss of 50K jobs a day is a quarter million jobs a week. A bit north of a million jobs a month.//

OMG. At that rate, everyone in the country would be out of work in 8.2 years. Everyone in the world by ...

By such conclusions is a bubble made.

[d'd'd'dave]

//My basic argument against highly 'progressive' tax rates is the general principle that wise decisions won't be made so long as you believe that most of the argument is about spending people's money from a class that isn't your own.//

Indeed.

[d'd'd'dave]

//True, there's something "unfair" about 999 people voting to raise the taxes paid by 1 person. But I can't work up much sympathy for that 1 person out of 1000 who makes a million bucks a year, or that 1 person out of 10,000 who makes multiple millions a year.//

Try this type of reasoning on a Gitmo detention thread where 'detention' is substituted for 'taxes' and people who are nodding will suddenly shake their heads. They will sputter and bluster and say "but it's different". Logic is a funny thing.

[Gary Farber]

"OMG. At that rate, everyone in the country would be out of work in 8.2 years."

Yes, half the country out of work within four years: no problem at all. Good to have that cleared up.

"They will sputter and bluster and say 'but it's different'."

I'm pretty sure there's a constitutional right to "due process" and to a whole variety of "rights."

I'm pretty sure there's no "right not to be taxed."

So, sure, no difference at all. It's imaginary.

Logic is indeed a funny thing.

[d'd'd'dave]

russell

//This is no joke anymore. We're walking a knife edge, and these guys want to take your money and mine and buy themselves a plane.//

Perhaps. But who gave them your money? It was congress and the president. And you're advocating more taxes so that congress and the president will have more to hand to them.

[russell]

They will sputter and bluster and say "but it's different".

You'll get no sputtering and bluster from me. You'll have my comment straight up with no need for sputtering and bluster.

In one case what we're taxing people who have greater wealth at a higher rate than people who don't.

In the other case we're chaining people to the floor, setting dogs on them, stripping them naked and dousing them with water while they are in cold rooms, pouring water up their nose so that they suffocate just short of drowning, hanging them from the ceiling by their wrists bound behind their back, and beating them to death.

Which would you rather be subject to? Take a minute to think it through if it's not clear to you.

F**k yeah, they are different.

Regarding the "1,000 and 1", if there is one person in this entire nation of 300 million who is not subject to some public policy or other on which they hold the minority opinion, I've yet to meet them.

It's a big country, there are lots of different kinds of people in it, and nobody gets their way all the time. Suck it up.

People who make a lot of money should thank their lucky stars that the policy on which they draw the short straw is which end of the progressive income tax rate they fall at. If, in fact, it's even reasonable to call that "drawing the short straw".

Just a pinch of perspective will do wonders.

[russell]

OMG. At that rate, everyone in the country would be out of work in 8.2 years.

And you know, this is a cute rejoinder, but 50,000 people woke up this morning with a job, and went to bed without one.

Be happy it wasn't you.

[russell]

But who gave them your money? It was congress and the president.

Yeah. And that sorry-assed president and some portion of the Congress is gone.

I will look forward to this president putting a nice tight leash on greedy, sociopathic SOBs like our friends at Citi.

And if he doesn't, I will do my damnedest to throw him out, too.

I have no such lever to apply to the executives at Citi. If they are very lucky I'll never meet them in person.

[Sapient]

//True, there's something "unfair" about 999 people voting to raise the taxes paid by 1 person. But I can't work up much sympathy for that 1 person out of 1000 who makes a million bucks a year, or that 1 person out of 10,000 who makes multiple millions a year.//

d'd'd'Dave wants us to ponder: //True, there's something "unfair" about 999 people voting to raise the detention paid by 1 person. But I can't work up much sympathy for that 1 person out of 1000 who makes a million bucks a year, or that 1 person out of 10,000 who makes multiple millions a year.//

It's true, I'm blustering and wondering what he's talking about.

[KCinDC]

They will sputter and bluster and say "but it's different".

Yes, just like there's a difference between the estate tax and the Holocaust, Grover.

[Dan S.]

d'd'd'dave, shouldn't you be helping out with the goat so your wife can get some sleep?

(yes, that's a bit, well, gruff - but honestly, tossing off this sort of mini-pseudo-Norquistian nonsense (nice catch, KCinDC), or the sleight of hand that tried to transform Obama and a Democratic-ish congress into Bush and a Republican one - it's downright insulting. You can do better.)

[Tony P.]

For d'd'd'dave's benefit, I suppose I should clarify something that should be clear to anyone but the most determined sophist.

The income tax is a tax on incomes, not on persons. It's easy, in the world we live in, to think that persons are their incomes. But a moment's thought suffices to avoid that error.

Raising tax rates on high incomes is unfair to a small, put-upon minority of persons, some say. That would be valid if high incomes were as immutable and as hereditary as, say, skin color. But if, as some also say, American free-market capitalism features a high degree of "income mobility", so that today's low-paid clerk is often tomorrow's CEO and vice versa, then it's disingenuous to equate heavy taxation of high incomes to unfair punishment of certain persons.

--TP

[Phil]

When you talk about "80% of the taxpayers (deciding) to lower their own taxes and stick it to the top 20%" you either misunderstand or misrepresent the case I make for progressive-all-the-way-up taxation. The people who make north of a million bucks a year are not remotely the "top 20%". They're more like the top tenth of one percent. The notion that the highest marginal rate must never exceed the marginal rate paid by people making a measly $350K a year is a bit silly.

To add to this, the "top 20%," if we're talking households, includes hosueholds with income of $90,000 per year. Which is the say, 80% of US households have incomes less than $90K.

98.5% of US households have income under $250,000 per year. So, yes, even if we're talking about people earning $250K, we're talking about 1.5% of taxpayers, not "the top 20%," by a long shot.

And I don't see any reason why those earning incomes of $1 million should have the same top marginal rate as those earning a fourth of that, especially if you're talking about cramming all taxpayers into three brackets as Sebastian is.

I also don't understand how a top marginal rate of 30% has become this magical talisman for some people. History tells us we can have a vibrant economy with much higher top rates.

Sebastian, has anyone run numbers with the system you propose here, and if so, what kind of revenue results can be expected?

[Sebastian]

Russel: "The argument is that I will not bother working harder to make the extra $100K because I'll only keep $60K, not $65K.

I'm sure there are, in fact, folks out there who just won't go the extra mile because of that $5K difference. I'm also sure that they are not the majority, and that when you factor in all of the folks who will gladly jump in and take their place the net effect on the economy as a whole is, at most, noise.

No, I have no cite. I just know a lot of entrepreneurial people. They'll bitch about the $5K and then they'll get back to work."

So you say.

I even believe it for a 5% difference, but not for a 20% difference. Which may be why I said "That is only because we aren't all using the same definition for 'higher'. If you are thinking 5% higher and the person you are talking to is thinking 20% higher you are talking about two very different things."

Yes, for SMALL differences in the progressive tax rate, the effect is small. For large differences it isn't.

Tony P: "True, there's something "unfair" about 999 people voting to raise the taxes paid by 1 person. But I can't work up much sympathy for that 1 person out of 1000 who makes a million bucks a year, or that 1 person out of 10,000 who makes multiple millions a year. "

There isn't enough money there to do the things you want to do. You could tax all the CEOs at 90% and you wouldn't get enough money to make a large dent in the budget, and you wouldn't get many people bothering to be CEOs so in year 2 of the tax regime so you'd make even less money.

Furthermore, that does nothing to address the main problem, which is that people aren't as careful to choose only wise projects when they think they are just spending other people's money. Having a situation where the majority pushes off the costs of their wants onto the minority is setting up a situation where the majority isn't likely to look carefully at the tradeoffs of those costs. This becomes more and more true, the more that the majority thinks it is escaping the payments.

[russell]

So you say.

Yes, so I say. As it happens, I actually *do* know a lot of entrepreneurial people. By "entrepreneurial people" I mean people who have started, built, and sold businesses, often several. Some have made themselves wealthy, often quite wealthy, in the process, and some have also made a number of other folks wealthy as well.

They are all very creative people. They like to make things happen. They like putting deals together, they like figuring out how to overcome obstacles, they like putting the right set of people together, they like finding the sweet spot where everyone involved wins.

They work hard, not necessarily any harder than anyone else, but they are *always* working. And in some significant way, it's not really work to them. They're having fun. It's what they do.

Fish gotta swim, birds gotta fly. Entrepreneurs gotta make the sweet deal. And not just for the money, although the money is a handy way to keep score. But mostly just to see if they can do it, to see if they can pull it off and make it work.

So, just talking about the folks I know, five points are not going to make them do or not do anything they think they want to do. If it's a cool idea they'll do it, just because they like to make cool ideas happen.

Yes, for SMALL differences in the progressive tax rate, the effect is small. For large differences it isn't.

Could be, but there are no large differences on the table.

And not for nothing, but we did used to have a 90% top marginal rate in this country, and folks still managed to start businesses, create jobs and useful products and services, and get rich.

Regarding CEOs specifically, executive compensation in large corporations in this country is obscene. Period. They don't create that much value, and the money they reward themselves with just comes out of the corporation's profits.

CEOs in other industrial nations, similar to ours, make due with a fraction of what we pay CEOs here.

If you want to talk about very high levels of taxation as being a disincentive for someone to create a company from scratch, with their own resources at risk, I'll say maybe you have a point. C level corporate officers are typically not those people.

They don't assume the same risks, they don't create the same value, they don't deserve the rewards. My two cents.

[Jesurgislac]

Sebastian: Furthermore, that does nothing to address the main problem, which is that people aren't as careful to choose only wise projects when they think they are just spending other people's money.

One of the terrible things about democracy. When countries were run by absolute monarchs who paid for all projects out of their own money, they was very, very careful to choose only wise projects.

Once the spending power got into the hands of the common people, they started recklessly abusing it on very foolish things.

[Jesurgislac]

You could tax all the CEOs at 90% and you wouldn't get enough money to make a large dent in the budget, and you wouldn't get many people bothering to be CEOs so in year 2 of the tax regime so you'd make even less money.

I think that the kind of people who only want to be CEOs because of the money, and who won't take a job if its $39,629,325 compensation package is taxed so that all they get is a mere $3,962 930 a year, are probably not the kind of CEOs you need. You want dedicated, intelligent people who love the challenge of being the CEO of a large company, and who will do the work even if they only take home less than four million a year.

[KCinDC]

How on earth did our economy survive in the old days before we discovered it was essential to have the sort of CEOs that can only be obtained by paying them several hundred times what the workers get?

[farmgirl]

russell: "People have, literally, had their damned heads chopped off in public for less than this."

yep. I'm anti-death-penalty and not generally an advocate of taking policy tips from the Chinese, but ... abusing the public trust in China gets you lined up against the wall and shot, as we've seen recently with the melamine-in-the-milk geniuses. I'm beginning to see that as a desirable outcome for some bank execs.

leniency will be considered for those who return their bonuses.

[hairshirthedonist]

The income tax is a tax on incomes, not on persons. It's easy, in the world we live in, to think that persons are their incomes. But a moment's thought suffices to avoid that error.

Raising tax rates on high incomes is unfair to a small, put-upon minority of persons, some say. That would be valid if high incomes were as immutable and as hereditary as, say, skin color. But if, as some also say, American free-market capitalism features a high degree of "income mobility", so that today's low-paid clerk is often tomorrow's CEO and vice versa, then it's disingenuous to equate heavy taxation of high incomes to unfair punishment of certain persons.

--TP

Thank you for writing that so I don't have to. Oh, those poor put upon people, forced by the stars to make all that money on which they have to pay taxes. And those terrible people who refuse to make all that money, just so they can avoid those taxes, those poor bastards.

[hairshirthedonist]

Oh, and another thing that bugs the he11 out of me about this "80 percent advocating using the money of the 20 percent" argument is that the advocates are not all in the 80 percent. Nor are protesters all in the 20 percent. There are plenty of rich liberals (or otherwise) who believe in greater progressivity in our tax rates. There are also, more inexplicably, those in the bottom 80 percent who, after listening to enough Rush Limbaugh (or something, who knows?), are in love with supply-side economics and trickle-down theories.

[Gary Farber]

Meanwhile, howsabout we have a Civil Works Administration?

[Sebastian]

Oh, hooray. Now I'm apparently arguing for a monarchy.

Or perhaps this is a Jes-impersonating troll?

Russell "So, just talking about the folks I know, five points are not going to make them do or not do anything they think they want to do. If it's a cool idea they'll do it, just because they like to make cool ideas happen."

Honestly I wonder if you read me, or if you just see my name on a comment and feel a compulsion to vehemently disagree. Yet again, I wrote "*I even believe it for a 5% difference*, but not for a 20% difference. Which may be why I said 'That is only because we aren't all using the same definition for 'higher'. If you are thinking 5% higher and the person you are talking to is thinking 20% higher you are talking about two very different things.'"

So yes, a marginal difference of 5% if *probably* not enough to make a big difference in work ethic for people that already have it.

"Could be, but there are no large differences on the table."

That rather depends on what you mean by 'on the table'. In Congress? Not right this second. In the thread of this discussion? Absolutely. Look at your arguments, Jesurgislac's arguments, and I think Phil though he isn't as clear. Look also at the comment I'm directly responding to by Tony P. Larger than 5% marginal differences are very much on the table here in this discussion.

I note also that while I didn't actually advocate anything close to a monarchy, someone on your side half-tongue-in-cheek suggests shooting failed executives. I'll wait for Jesurgislac's usual rant against the death penalty...

[Tony P.]

Seb: There isn't enough money there to do the things you want to do. You could tax all the CEOs at 90% and you wouldn't get enough money to make a large dent in the budget, and you wouldn't get many people bothering to be CEOs so in year 2 of the tax regime so you'd make even less money.

Sebastian, I will not offer you the insult of assuming you believe what you just wrote. People not "bothering to be CEOs"?!? Surely you jest. I suppose nobody would bother playing shortstop for the New York Yankees, either.

As for not "enough money there", I don't know where to begin. For decades now, I've heard conservatives caterwaul about the frighteningly high percentage (30? 50?) of "all income taxes" paid by a stunningly small percentage (1? 5?) of taxpayers. Even if you take the zero-sum view that conservatives accuse liberals of holding, there's at least some money there.

But of course my original point was that progressive-all-the-way-up taxation is not a zero-sum proposition. It would be a stimulus to The Economy, which requires consumers as well as producers in order to be an economy. The highly-paid get their enormous paychecks mostly from businesses whose customers are masses of much-less-well-paid people. Enrich those masses just a little bit, and you go from economic recession to economic boom. Profits soar. Top-level paychecks go up, pre-tax. If they don't go up enough to compensate for the higher marginal taxes on them, well, boohoo.

--TP

[gwangung]

Enrich those masses just a little bit, and you go from economic recession to economic boom. Profits soar. Top-level paychecks go up, pre-tax. If they don't go up enough to compensate for the higher marginal taxes on them, well, boohoo.

My thought is...does that make us worse off if that latter case happens?

[farmgirl]

Seb: "someone on your side half-tongue-in-cheek suggests shooting failed executives"

it isn't "failure" that's at issue. it's blatant fraud and misuse of public resources. what initially brought this to mind were the $3-4 BILLION in bonuses paid out by Merrill Lynch at the end of December, one month earlier that usual, days before their takeover by Citi was completed, with billions of tax dollars (what was it, $20 billion more needed at the last minute?) midwifing the whole operation. or, you know, the new $50 billion jet that Citi is now buying with our money.

tell me why these people aren't, at minimum, making large rocks into smaller rocks.

[Sebastian]

There are absolutely cases of fraud, but the truly shocking/frightening thing is that this economic downturn does not largely seem to be about fraud. If your frame of this recession is that financial executive fraud caused it, I don't think that is particularly correct/helpful.

[Bernard Yomtov]

You could tax all the CEOs at 90% and you wouldn't get enough money to make a large dent in the budget, and you wouldn't get many people bothering to be CEOs so in year 2 of the tax regime so you'd make even less money.

Repeating myself, I would like to point out that income taxes apply to non-labor income as well as labor income. If you are concerned about having a tax structure that avoids reducing the incentive of wealthy people to work, shouldn't you tax investment income and inherited wealth, for example, heavily?

I also would like repeat my point that the presumption that higher taxes on labor necessarily reduce work effort is not technically true.

[farmgirl]

Seb -- my frame is not that executive fraud *caused* the current financial turmoil. my apologies for not being more specific in my references.

what I am railing against is the evidence that has been coming forward, since nearly day one (AIG!), regarding behavior and choices in the bank bailout period. but for the government dime these companies (and their employees) would have faced financial disaster. I expect them to conduct themselves with the humility appropriate to the circumstances.

[farmgirl]

... and a pony.

[ThatLeftTurnInABQ]

what I am railing against is the evidence that has been coming forward, since nearly day one (AIG!), regarding behavior and choices in the bank bailout period. but for the government dime these companies (and their employees) would have faced financial disaster. I expect them to conduct themselves with the humility appropriate to the circumstances.

Problem is, the bank exec's behavior (and lack of humility to be inferred from it) has shown a fairly accurate and acutely perceptive view of their circumstances. Namely that having leveraged themselves into a position where they can in effect hold the entire global economy hostage, and having thoroughly penetrated both political parties here in the US at many levels of govt with their friends and ideological allies, they are in a position to dictate terms to us, not the other way around (see the story highlighted by hilzoy in this post for just one example of who is really calling the shots).

And that is exactly what they have done. The looting will continue until they are forcibly thrown out of the positions of power and influence which they currently enjoy. And while I'm cheered by many aspects of the new Obama administration, his economic team (Summers and Geithner in particular) do not give me much grounds for hope that this state of affairs is changing as quickly as I would like to see.

I really don't want to set up a guillotine on Wall St. and start chopping off heads, but I'm left wondering what, short of that, is going to convince these people to leave the gambling table with their ill-gotten gains now rather than coming back for another round, since the odds have been, are, and (for the immediately foreseeable future) will continue to be stacked in their favor.

If we don't do anything else, at the very least we need to break the Wall St. mega-firms up into much smaller pieces and then install regulatory constraints such that "too big to fail" = "too big to be allowed to exist". No single firm should be large enough to blackmail sovereign states, which is where we are right now.

[russell]

Honestly I wonder if you read me, or if you just see my name on a comment and feel a compulsion to vehemently disagree.

No Seb, nothing like that.

My apologies, it wasn't my intent to be argumentative for it's own sake. I do see, and note, your point about the difference between 5% and 20% increases in marginal rates.

That rather depends on what you mean by 'on the table'. In Congress?

In Congress.

I note also that while I didn't actually advocate anything close to a monarchy, someone on your side half-tongue-in-cheek suggests shooting failed executives.

That would be farmgirl. She's an excitable girl! :)

I think she was also clear about not supporting capital punishments, and was (I think) just drawing a comparison with how violation of public trust is treated in, frex, China. Just as I was with, frex, France in its revolutionary period.

I do share her interest in seeing a lot of these guys in orange suits.

I take your point about the current crisis not being about legally actionable fraud, but what I take away from that is that the law needs a better definition of fraud.

[bedtimeforbonzo]

Good luck, Timothy Geithner.

[bobbyp]

Strange how nearly all conservatives ignore the fact of the backward bending supply curve for labor... a curve that clearly implies that under certain circumstances more labor is supplied at a lower price!

The lefty Laffer curve. Put millionaires to work: tax them heavily.

[bobbyp]

russell,

Our esteemed financial elite cannot be blamed for this mess. They were just searching for market equilibrium :)

Nonetheless, the fact that it was not where they were searching for it so assiduously, or why they didn't look for it in some other place is quite instructive.

[bedtimeforbonzo]

CEOs Gone Wild -- and engaging in class warfare.

This takes balls.

And Congress keeps giving them money.

Does not make sense.

[Gary Farber]

"...the new $50 billion jet that Citi is now buying with our money."

That's one hell of a jet.

[bedtimeforbonzo]

I just heard perhaps the best commentary to date on this whole mess.

Since I can't access YouTube from my computer here at work, I'd appreciate it if someone would link "I Want My Bailout Money" -- this commentary is a rap song. It'll make you laugh, it'll make you cry.

Thanks!

[Slartibartfast]

It's like 50 B-2 bombers, all in once nice corporate business travel form factor.

[Jesurgislac]

Sebastian, you argue that people are wiser when they're spending "their own money" on projects.

But, with nation-sized projects, the only people who can pay for them with their own money are either monarchs or dictators. Democracies pay for such nation-sized projects by taxing people - and everyone pays taxes! - and using the tax revenues to pay for those projects.

My contrast between Ludwig of Bavaria's mad castles and the NHS was deliberately chosen: monarchs have spent their money wisely, and democracies have done so foolishly. But, on the whole, I'd rather live in a country where the revenues are democratically controlled, than the country you seem to be envisaging where immensely rich individuals spend "their own money" on projects which the rest of us must hope will be "wise".

[Phil]

I think I need Sebastian to present some evidence that a 20% change in marginal rates has the effect he is repeatedly claiming it does in regards to people simply deciding not to work any more. Because, aside from the one poster here who claimed that with even a slight raise in his taxes he would shut down his company and fire everyone, my experience jibes with russell's. If anything, people in the tax brackets we're discussing usually simply give more to charities, where it goes untaxed. Which, despite the caricatured version of liberalism some might believe in, is actually a good thing. If we had better-funded charities in this country, government might not need to be taking on some of those roles.

So I'll take the first step -- the following periods saw a one-year change of 10+ percentage points in the top marginal rate. I'd like Sebastian to describe for me the behavior of the people in those brackets during that period, and the general economic effects. Because I've seen this claim bandied about with no evidence pretty much forever, and it's getting tiresome.

1916 - 1917: 16% to 67% (+51)
1921 - 1922: 73% to 56% (-17)
1923 - 1924: 56% to 46% (-10)
1924 - 1925: 46% to 25% (-21)
1931 - 1932: 25% to 63% (+38)
1935 - 1936: 63% to 79% (+16)
1963 - 1964: 91% to 77% (-14)
1981 - 1982: 70% to 50% (-20)
1986 - 1987: 50% to 33% (-17)

[russell]

From bedtime's link:

Bernie Marcus, the charismatic co-founder of Home Depot, led the call along with Rick Berman, an aggressive EFCA opponent and founder of the Center for Union Facts. Over the course of an hour, the two framed the legislation as an existential threat to American capitalism, or worse.

"This is the demise of a civilization," said Marcus. "This is how a civilization disappears. I am sitting here as an elder statesman and I'm watching this happen and I don't believe it."

Donations of hundreds of thousands, if not millions, of dollars to Republican senatorial campaigns were needed, they argued, to prevent America from turning "into France."

Too funny.

Next thing you know the Visigoths will be sacking Wall St, and they'll be serving rabbit ragout at McDonalds!! Maybe the last remaining stock analysts will hole up in remote Benedictine monasteries, poring over profit and loss statements by candlelight before matins.

That, my friends, is some drama we can believe in.

The only comment I'd like to offer in reply is this:

Mr. Marcus, your stick lumber sucks, and any hardware store where I can't buy fasteners by the piece is no hardware store at all.

Touche!

[Nell]

Phil, thanks so much for that list. I had no idea that the "roaring twenties" had so much in common with the "rollback eighties".

The deindustrialization that has taken place since the late 1970s has to be reversed. Public investment in jump-starting green technologies seems like the most job-creating, climate-change-minimizing approach possible -- and the scale of the problem means that it has to be undertaken almost on a war footing.

So back to high marginal tax rates. I'm not particularly interested in trading the country's and the planet's future for the ability of hedge fund and bank executives to spend whatever they want on whatever they want.

[Gary Farber]

"I had no idea that the "roaring twenties" had so much in common with the "rollback eighties"."

And nineties: Oh, in so many many ways: the hysteria about minorities, and dangerous "radicals," the anti-immigration frenzy, the first War On Drugs, the Greed Is Good worship of Wall Street, the conviction that America Is Back after a triumphant Good War, government spying on the citizenry....

[bobbyp]

So, how many analysts CAN dance on the head of a pin?

Conservative economics = Scholasticism at its worst.

[bobbyp]

"...but the truly shocking/frightening thing is that this economic downturn does not largely seem to be about fraud."

A claim noboby here is making. So what's your point?

[Jesurgislac]

I think that the kind of people who only want to be CEOs because of the money, and who won't take a job if its $39,629,325 compensation package is taxed so that all they get is a mere $3,962 930 a year, are probably not the kind of CEOs you need. You want dedicated, intelligent people who love the challenge of being the CEO of a large company, and who will do the work even if they only take home less than four million a year.

I might add, Sebastian, that I work at a job I love, and my pay *before* taxes is such that I would have to work for 106 years before I would earn the kind of take-home pay you feel is not enough to make people "want to be CEOs".