Does rigid mobility imply low tax elasticities?

by on May 10, 2014 at 3:38 pm in Economics, Science, Uncategorized | Permalink

In an excellent review essay on Greg Clark, Arnold Kling says maybe so:

On the other hand, his findings argue against the need to create strong incentives to succeed. If some people are genetically oriented toward success, then they do not need lower tax rates to spur them on. Such people would be expected to succeed regardless. The ideal society implicit in Clark’s view is one in which the role of government is to ameliorate, rather than attempt to fix, the unequal distribution of incomes. As Clark puts it,

“If social position is largely a product of the blind inheritance of talent, combined with a dose of pure chance, why would we want to multiply the rewards to the lottery winners? Nordic societies seem to offer a good model of how to minimize the disparities in life outcomes stemming from inherited social position without major economic costs. (page 15)”

ummm May 10, 2014 at 4:03 pm

A monarchy or welfare state is good for below average people, while meritocracy such as America is optimal for above average , smart high IQ achievers. You want to multiply the benefits to create incentives for smart, hard working people to create technologies that grow the economy rather than become servants to the state. There are elements of luck and genetics, but hard work does play a role, too. That’s why GM failed because it was uncompetitive and below-average workers were overpaid. These Nordic countries suffer from this same sclerosis but it may take longer for them to fail ,which they will like Greece within the next few decades I predict.

david May 10, 2014 at 4:33 pm

You want to multiply the benefits

Who is the ‘you’ here?

Frank May 10, 2014 at 5:12 pm

The solution is to ameliorate the biological impediments rather than to re-argue old debates that are rooted in social preferences.

Forced genetic lotteries are the problem at higher level of productivity/performance. We’re working incrementally towards solving this issue without any singular top-down guidance.

spencer May 10, 2014 at 5:45 pm

It was not GM workers that were below average, it was GM executives that made the bad decisions that ruined GM.

ummm May 10, 2014 at 6:04 pm

the unions encumbered the company. in a free market, companies should have the ability to reward talent and modify the workforce as needed, including firing under-performing employees. A country is a lot like a company. It’s not debt that will kill America, it’s lack of competitiveness.

oakchair May 11, 2014 at 7:37 pm

Odd because in reality unions increase productivity
http://www.americanrightsatwork.org/component/option,com_issues/Itemid,366/view,issue/id,12/
^Unions raise manufacturing productivity by 19-24%, hospitals by 16%, and 17-38% for construction work places
http://www.academia.edu/175958/What_Do_Unions_Do_to_Productivity_A_Meta-Analysis
^Make a sourcfe for all below PAGE 670
Allen (1984, 85, 86, 88) productivity increased on average 5% (15% in total)

Arthur 1994 unions on average increase productivity 7% and in total 15%

Bartel 1994 increased 7% 42%

Cavalluzzo and Baldwin 1993 38%

Cooke 1994 29%

Craig and pencavel

http://www.askneca.com/unionadvantage/Electrical%20-%20Biz%20Plan%20(2).pdf
^Unionized construction business are 17% more efficient.

http://www.oliverwyman.com/content_images/OW_EN_Automotive_Press_2008_HarbourMedia08.pdf
Union Car plants had:
1) 70% of the most efficient assembly plants.
2) All 10 of the most productive plants are union plants.
3) 70% of the most efficient engine plants
4) 80% of the most efficient transmission plants.
5) Union plants assembled their vehicles in fewer hours in 11 of the 12 product categories. Union plants productivity:
1) Small cars was 32% higher.
2) Mid-sized cars was 13% higher.
3) Pickups were 40% higher.

SOURCE: Charles Brown and James L. Medoff, “Trade Unions in the Production Process.” Journal of Political Economy, vol. 86, no. 3 (June 1978): 355–378.
^Scholars Brown and Medoff found that unionized establishments were around 22% more productive.

SOURCE: Harley Shaiken, cited earlier, quoting Richard Freeman and James Medoff, What Do Unions Do? New York, Basic Books, 1984.
^One reason unions are more productive is that Unions result in less employee turnover about 1/5 of unions productivity comes from lower turnover rates.

—Why unions workplaces are more productive.
1) Union workers are better compensated meaning they are happier with their job and more willing to work.
2) Union workers receive better health care benefit’s meaning union workers are less likely to get sick or be sick while working.
3) Unions have lower turnover rates meaning trained workers are always working and you aren’t always training new workers, and also the workers are more experienced.
4) Unions are more likely to offer to train their members meaning workers become better trained; also unions are more likely to train their members with the newest technology.

Dan Weber May 10, 2014 at 6:35 pm

Any attempt to blame GM entirely on labor or management is usually missing a lot of the story.

prior_approval May 10, 2014 at 11:41 pm

Well, when it comes to what happened to Opel, blaming the (GM’s) management is easily supported, and well understood in Germany as another example of the failure of American executives to actually be able to successfully run an industrial concern.

In part, because those same American executives kept paying themselves more as their business tanked – the idea that any GM CEO in the past 15 years is worth even what the cheapest assembly line makes in Bochum is considered laughable here.

Clover May 10, 2014 at 9:29 pm

They will fail Real Soon Now, as will all countries who don’t adhere to neoliberal logic.

Greece has failed because their economy saw a lot of over investment, people assumed that since it was part of the eurozone it had a eurozone-like economy, but then the bust happened and people realized the country’s productive capacity could not support a eurozone-like economy or eurozone-like wages. The Nordic countries, similarly to Japan, rely on exporting high-tech and advanced industrial products.(Norway also has oil) They show clearly that they are capable of long term success at earning export income, this isn’t comparable to Greece, which relied on a debt based temporary boom.

One could imagine that the high wages of the Nordic countries would lead their industries to be noncompetitive with cheaper foreign labor, however foreign countries don’t seem to be able to do that now and I don’t see why one would expect them to be able to do so in the future.

derek May 10, 2014 at 11:56 pm

Greece’s problem was government borrowing, not investment.

prior_approval May 11, 2014 at 3:07 am

Greece’s problem was its government’s utter inability to collect taxes.

Nathan W May 11, 2014 at 11:37 am

Aye. A society born and bred on tax evasion is not going to have an easy time fixing macroeconomic and fiscal disequilbiria.

That’s not an insult. It’s true. Just ask anyone who knows anything about Greece: I’m taking their work for it.

Normalizing some form or another of tax collection is probably the single most important thing the Greek state can do to improve its books. Having to keep books might make them better at business too.

Harun May 11, 2014 at 11:10 pm

If you cannot collect taxes, then don’t spend like a country that can collect taxes.

I also think that ignoring super early retirement ages, over generous pensions, and 50k Euro salaries for train conductors was a big part of the problem.

So, no it not just that they cannot collect taxes.

Aidan May 11, 2014 at 5:30 am

Greece’s problem wasn’t the boom or the bust. They come with the territory if you’re going to have a capitalist economy. Greece’s problem was (and still is) the fact that the Eurozone financial system is structured in such a way that the country was forced to choose between total, systemic financial collapse and pretending that there was no bust and it will be able to pay back its debts pretty much as normal. You’d see lots of pretty similar situations in the US economy if they decided to make bankruptcy illegal.

Moreno Klaus May 11, 2014 at 1:37 pm

Good gosh… 1) who says that the objective of mankind should be maximize gdp ? Survival of the fittest is horrible…unless you dont need to survive. 2) comparing greece to nordic countries is ludicrous…you are talking about two different worlds. 3) America is optimal for people who are borne rich or upper middle class. Its was certainly not only luck with gates or zuckerberg….its the socioeconomic conditions of your parents.

wiki May 10, 2014 at 4:33 pm

Kling confuses stable mobility with how elitism is expressed. A society that values bureaucrats gets more of them while good tax policies lead to more entrepreneurship and investment. Even if the same families go to elite schools, what they major in and what they work on is very much affected by policy. The US gets a Silicon Valley, the French get an elite civil service. These are not equivalent even if the elites stay the same.

Hasbro May 10, 2014 at 5:34 pm

Higher tax rates doesn’t automatically translate into a society that values bureaucracy. You could have a simple but progressive tax code plus guaranteed income for all. No need for a bunch of government workers.

lupis42 May 10, 2014 at 7:03 pm

What the higher tax code does is dramatically reduce the incentive to pursue taxable remuneration – so those likely to succeed do so, but they pursue avenues that offer relatively less taxable compensation and relatively more non-taxable (or hard-to-tax) compensation.
Whether that’s a desirable outcome probably depends a lot on your priors about whether it’s better for people with talent to become intellectuals or entrepreneurs. (e.g. http://www.libertarianism.org/publications/essays/why-do-intellectuals-oppose-capitalism)

wiki May 10, 2014 at 7:27 pm

I’m willing to consider the possibility empirically but so far, no country with egalitarian policies and generally good welfare has done much to outstrip the US in terms of growth, productivity, and innovation — especially if you take total, not just per capita GDP into account. A nation whose population doesn’t grow and whose per capita GDP grows at 3% per year doesn’t do as much for world production as one that manages to grow at 3% per year AND show higher population growth rates, even if the people in both perceive themselves to be equally well off. Japan and Europe haven’t exactly been shining beacons of innovation and growth in the last 20 years.

spencer May 12, 2014 at 1:03 pm

Try comparing the US against itself.

From 1850 — when the basic elements of modern capitalist free markets were in place — until 1950, trend US real per capita GDP was1.4%.. The depression did not distrot this trend as it is the same from 1850 to 1925.

Since 1950 when we have been burdened with big government and welfare programs, trend US real per capita GDP has been 2.1% — a 50% higher growth rate.

In the earlier era US population growth was much higher and that accounted for much of US growth.

derek May 10, 2014 at 8:06 pm

And they say libertarians are utopian.

What is the limiting factor on the growth of a bureaucracy? Money. High tax rates mean more money, hence more bureaucracy. Who do you think are going to micromanage the lives of all those dependents?

Hasbro May 10, 2014 at 8:17 pm

There’s more than one way to starve The Beast. If 180 million “dependents” become accustomed to a guaranteed income, money will be a limiting factor on the growth of the bureaucracy just as it would if tax revenues were low.

Clover May 10, 2014 at 9:19 pm

Who do you think are going to micromanage the lives of all those dependents?

There wouldn’t be a need to micromanage the lives of those dependents if you simply have a straight up redistribution scheme. Of course if you have a low IQ, low future time oriented population of dependents you are going to need to micromanage them, you won’t if you have Norway’s demographics. Or you could simply give them money and tell them to do whatever the heck they want with it, it would be a boon to the liquor industry.

oakchair May 11, 2014 at 7:40 pm

odd because european socilized health care system have 20% less bureaucracy then the american system

Paul May 10, 2014 at 11:05 pm

I think that wiki is making a valid point. If it is true that social mobility is very low in societies all over the world, then perhaps it is more important to think about how policy and other factors impact the behavior and norms of people in the various classes. France has policy that funnels the elite into civil service. The U.S. has policy that funnels the elite into Silicon Valley or Wall Street. Japan and South Korea seem to funnel their elite into super large conglomerate corporations. I am uncertain about the Nordic countries, but they do seem to have their share of billionaires, entrepreneurs, engineers, scientists, as well as artists. Perhaps one of the results of having a more egalitarian cultural orientation is more variety in what endeavors the elite pursue.

wiki May 12, 2014 at 8:48 am

Let us not forget the one thing that European policy does to their elite — it funnels many of their top scholars to the U.S. I believe that the German welfare state paradise beloved of losers from the American rat race used to have a regular TV show about professional families who had moved to North America for greater opportunity. And the EU has been wringing its hands about all the PhDs who spend most of their productive years in the US. Even Piketty’s Paris School of Economics was an administrative creation to permit France to develop a top Economics research center comparable to a top 20 US department. For all the pleasantness of European welfare, its best routinely strive to go to the USA.

Hmm May 10, 2014 at 4:35 pm

I’m with umm on this one -

As a quick thought exercise, relevant to both this article and Mr. Piketty’s recent book, would anyone question the superiority of the American entrepreneuial-capitalism model (with its attendant inequality, yes) if there were no trade between nations? ie, imagine a giant glass wall separated each nation – or region, if you prefer – from all others. Obviously such a thing would be terrible for the US – we unquestionable benefit hugely from free trade – but you would see an awfully stark contrast between the standard of living for the median man in the US and just about everywhere else if those non-American folks had no access to the the technological wonders that America has contributed in a wildly-disproportionate way to the world.

joan May 10, 2014 at 7:06 pm

It is only since 1980 that the US has had more inequality than other rich countries. http://visualeconsite.s3.amazonaws.com/wp-content/uploads/percent_income_top_0_1.gif

8 May 10, 2014 at 11:31 pm

You propose a very interesting test, since American elites do seem concerned about running the world. Since power is a relative status game, the U.S. could maximize power by restricting trade and limiting immigration only to entrepreneurs and engineers with high skills.

Paul May 10, 2014 at 11:17 pm

The U.S. follows an entrepreneurial-capitalism model? The impression that I get from reading this blog is that large, incumbent firms have ample means within the U.S. to make it difficult for new firms to compete, and the means are often not by offering a better product, cheaper product, or better value to the customer. Perhaps all of the talk about patent abuse makes it seem like big companies get a free pass to sue upstarts out of existence, and that is not actually true. It just seems to me that the U.S. has a culture where a lot of lip service valorization is paid to entrepreneurship and competitive markets, but the actual policy of the various levels of government is to heavily favor large incumbents and to make it more difficult for new firms to compete without hiring a team of lawyers. I suspect that it is possible to have high-taxes and high levels of redistribution without also having laws and regulations that put up insurmountable barriers to entry in lots of markets.

Nathan W May 11, 2014 at 11:41 am

Thanks. But the surpluses which kickstarted things may very well have been stolen.

Are you prepared to tell the developing world the truth that they got the royal shaft for centuries and it still sets them back… and then make the case that all the technological wonders developed by inventors who lived off the fat of slave labour mean that it was ultimately worth … and by the way so very sorry but let’s make it better now …?

Yeah, I’m talking history, but if you want thanks for the good stuff without acknowledging its dodgy historical origins, then I think you will in fact rub the wrong way precisely the people who you likely most aspire to reach.

Moreno Klaus May 11, 2014 at 1:49 pm

Hmm…I m not with you on this. Nowadays innovation does not come from one single place. It is everywhere. If you cut the links you would get a far below optimal technology. Everyone would be worse off, but to say us would be far better than the rest sounds quite arrogant…in particular if you go to most us university departments you will see that a large part is foreign born. Superiority in exactly what? If people are struggling to survive whats the point? If ppl dont know if they will be fired tomorrow or have to work like slaves the whats the point? The thing is that Us rewards the best, thats the true, but there are not many people on that category by definition.

oakchair May 11, 2014 at 7:42 pm

Given that on a per person basis other advance country have the same technological advaancment as america your whole post is only valid if ones lives in a fantasy world.

Handle May 10, 2014 at 4:56 pm

On the other side of that coin is the insight that you might have adjust policy to offer people at the bottom extremely strong gains and thus less competition in order to motivate them to work hard to improve themselves and succeed.

See, e.g.

Foobarista May 10, 2014 at 5:15 pm

The issue here is whether successful people will seek success in socially useful activities such as starting businesses, or will they go for rent-seeking and power-grabbing in the bureaucracy? If you make it hard to succeed in business, smart, ambitious people will go elsewhere to succeed.

And no, having the smartest people in government isn’t necessarily a good thing. Russia, North Korea, and numerous other places we wouldn’t think of as wonderful have very smart people in their bureaucracies, and they use their “smarts” trying to figure out ways to backstab each other and prey upon the populace. The people who can’t stomach paying the moral price to succeed in the bureaucracy end up emigrating.

Clover May 10, 2014 at 9:05 pm

Japan and the Nordic countries have bureaucracies with a lot of power, and yet they don’t see the level of corruption that Russia does. What is the deciding variable here?

Ian May 10, 2014 at 11:50 pm

70 Years and multiple generations of soviet corruption as the norm.

Nathan W May 11, 2014 at 11:43 am

Don’t powerful people use their power for the purpose of engaging in rent seeking, in some direct or indirect form or another?

I mean, there are exceptions, but we call them heroes, not the status quo.

spencer May 10, 2014 at 5:50 pm

But we have moved strongly in the direction of rewarding hard work with lower taxes foro ver 30 years and the results has been economic stagnation and a steady decline in business formation.

At some point you are going to have to face the fact that a 30 year experiment with your economic strategy has failed miserably.

JCW May 10, 2014 at 9:58 pm

+1

I get so tired of hearing that if only tax rates went a little bit lower and regulation decreased just a bit, the utopia is just around the corner.

ThomasH May 11, 2014 at 7:32 am

Some bad regulation is just stupidity, but a lot is (I speculate) a sort of ham-handed way to redistribute income or achieve some goal without explicit taxation. If it were easier to redistribute income through income (or consumption taxes) would that make it easier to regulate better? I’m thinking EITC instead of minimum wages, carbon taxes rather than tax credits and percent set asides for CO2 reduction, employer subsidies and mandates rather than subsidized private insurance for health care.

BenK May 10, 2014 at 5:51 pm

I agree with Foobarista – if human nature is what is driving acquisition and results are largely leveled by the tax code, then the majority of effort will go towards … subverting or controlling the tax code.

Hasbro May 10, 2014 at 8:24 pm

That’s a circular argument and you know it.

CMOT May 10, 2014 at 5:51 pm

They always promise Scandinavia but they always deliver East St. Louis.

Clover May 10, 2014 at 9:03 pm

That’s because they are liberals. A HBD aware “socialism” would be much harder to refute.

Paul May 10, 2014 at 11:23 pm

Are liberals still promising utopia? My impression is that the policy agenda of the Democratic party has become rather incrementalist and pragmatic. Bill DeBlasio is held up by liberals as some sort of progressive icon, but all he is promising so far is to expand the public school system by one year and to loosen regulations so that developers can build more buildings. The “War on Poverty” was fifty years ago. I cannot think of a single, currently prominent Democratic figure who acts like they believe that it is within their capabilities to end poverty.

8 May 10, 2014 at 11:47 pm

Yes, they’re not proposing much because it has all failed, but they’re also not reforming. They’re just whipping up hysteria against the boogeyman in order to stay in power. If it wasn’t for the white male chrstian juju, things would be working fine.

F. Lynx Pardinus May 11, 2014 at 8:05 am

Several people here are failing Caplan’s ideological Turing test toward liberals.

oakchair May 11, 2014 at 7:47 pm

Liberals have failed?
Is that why in America liberal controlled states have per capita GDP that is 30% higher then conservative controlled states, lower crimes, basically liberal states are better off in every measurable outcome.
So when you say it has failed you are either ignorant or a lying hack

Clover May 12, 2014 at 10:56 am

Three words: non-Asian minorities.

Clover May 11, 2014 at 3:54 pm

Politicians rarely say something so obvious as “I will end poverty,” but if you look at the way liberals look at their politicians, Obamacare will fix the healthcare system. The achievement gap will close if we have a few more thousand dollars per student in funding. We can “stop” climate change.

albatross May 12, 2014 at 1:41 pm

Okay, but both parties seem to be big on closing the achievement gap–NCLB was George W Bush’s baby, and vouchers and charter schools are routinely proposed on the right as ways to close the achievement gap.

Similarly, both parties seem to have some notion of fixing healthcare. Just different prescriptions. Also, while nobody really has shown a good way to close the black/white achievement gap, lots of countries have working healthcare systems that cost much less than ours but deliver comparable results.

Steve Sailer May 10, 2014 at 6:40 pm

The top 25 hedge fund managers made an average of $820 million each in 2013? Yet, for some reason, I suspect most of them still would have gotten out of bed most mornings for only $82 million.

Doug May 10, 2014 at 6:51 pm

If someone already has a few billion net worth (as is typical of those on that list), I very much doubt that he’d be very motivated to make $82 million a year.

libert May 10, 2014 at 7:37 pm

It always seemed to me the most reasonable justification for a progressive tax structure was not some abstract concept of “fairness”, but rather Doug’s observation that a billionaire simply doesn’t care about an extra $82 million.

Steve Sailer May 10, 2014 at 8:20 pm

But if instead of a hedge fund manager having $2,500,000,000 in new worth, he was struggling by on only $250,000,000, would he get out of bed to earn $82 million?

Doug May 11, 2014 at 12:19 am

So now you’re proposing not just raising taxes on income but confiscating significant portions of existing wealth? Because that’s not a moderate middle ground between now and 1950s economic policy, but a radical and unprecedented shift towards socialism.

Ray Lopez May 11, 2014 at 12:53 am

SS is right. Studies have shown the rich are, after the last incremental dollar is earned, not motivated by money. Like Steve Jobs and Bill Gates and others, they work because of the love. When Jobs had cancer he could have retired if he hated work. Likewise for a while Gates worked when he was the world’s richest man until he got bored. Other rich have backed up this anecdotal evidence. So you can tax the rich more; they will work regardless (taxing investment is another matter and should be left alone). As for Arnold Kling, he is simply arguing if…then, he is not saying it’s definitely true what Clark posits.

Doug May 11, 2014 at 2:47 am

@Ray

If that’s the case then why do so many billionaires move to tax havens? Monaco should surely have no more ultra-wealthy residents than nearby Nice. Why did Ingvar Kamprad bother to move far away from his home just to double his after-tax fortune, that he could never spend in a hundred lifetimes? Like it or not billionaires don’t just work for the “love of it.” Why would Steve Jobs have risked potential jail time to make a few extra hundred million from backdating options? The bottom-line take home pay is very very important. Not necessarily for personal material consumption, but one because many are interested in building long-lived dynastic empires, and two because it’s an important marker of relative status.

If you severely curtail the ability of the ultra-risk to earn income, then many will stop playing. Unless you also confiscate a large proportion of existing wealth, the relative rankings will remain static with no incentive to try to surpass your rivals. Even disregarding that there’s many non-monetary markers or wealth: fame, political power, attractiveness, charisma, etc. Many men will work hard to go from $500 million to $1 billion because it will increase their social status relative to movie stars or congressman.

Ray Lopez responds to Doug May 11, 2014 at 8:39 am

@Doug- you are confusing marginal behavior as the tax code now exists with marginal behavior when and if the tax code changes.

Quick explanation: in ANY tax system, the rich may try and evade taxes. Even if the tax rate was 1% (after all, 0%, not paying taxes, is better than paying 1%). But this does not negate my argument that the rich don’t mind paying higher taxes–that is, they will not go on an Ayn Rand type strike. “studies have shown” of course.

oakchair May 11, 2014 at 7:49 pm

@doug there havwe been dozens of studies that show that on net rich people moving because of high taxes does not happen. Of course you can bring up one or two examples but in reality it doesn’t happen on a significant scale

Clover May 10, 2014 at 9:02 pm

And he would be motivated to make 820 million? A person with a billion dollars could easily simply not work and live very comfortably off of the interest on his money. At that stage more money is just a number on a net asset balance sheet.

Doug May 11, 2014 at 12:22 am

But at least a significant number of billionaires do wake up in the morning just to increase that number. Bill Ackman goes into work everyday largely so that he can potentially be one day richer than his nemesis Carl Icahn. If he can only make $82 million a year he will never make up that gap of several billion dollars.

When you have that amount of money it’s just keeping score, but if you raise taxes too much there’s no reason to play a game where the score can never change.

F. Lynx Pardinus May 11, 2014 at 8:11 am

When we’re setting overall tax policy for hundreds of millions of Americans based on how jealous we can make two hedge fund billionaires at other, something has gone horribly wrong.

Matt May 11, 2014 at 12:54 pm

For one thing, whether or not he would work for $82 or $820 million, it is the height of foolishness for us, to go around telling him that, yes, of course his ability all comes from his hard work and free will for which he deserves to be richly compensated, and yes, of course, he is perfectly justified asking for the $820 million, as a man can set his own price to whatever he wants, as he owes his abilities only to himself, not to chance, or nature.

These would be highly dubious things for the rest of society to tell the guy, and the main reason is that there is little truth to them. We should at least start with not telling him this bs.

For another thing, the issue that Clark raises, really is that financial incentives predict little of who will fall above the mass, or beneath the mass. So incentives do not help us to sift talent from the mass. They may help us to gives incentives to the talent when they are at the top, but incentives (and largely, apparently, degree of meritocracy) are unnecessary for sifting social success talents from non-talent, or drawing forth all the talents from the mass. So we should apply our incentives without assuming that this “sifting” and “sorting” role of incentives is necessary at all (instead they’re a force multiplier, if they matter at all).

Foobarista May 11, 2014 at 6:25 pm

If taxes are that high, we simply wouldn’t have hedge funds. These guys would be powerful bureaucrats instead, with low nominal salaries but the sort of “power perks” that would impress Julius Caesar.

Frankly, I’d rather these guys chase wealth versus raw power.

S May 10, 2014 at 7:17 pm

“If social position is largely a product of the blind inheritance of talent, combined with a dose of pure chance, why would we want to multiply the rewards to the lottery winners? – See more at: http://marginalrevolution.com/marginalrevolution/2014/05/does-rigid-mobility-imply-low-tax-elasticities.html#comments

Because they are not lottery winners. We know who they are going to be because we know who their parents are. The real question is, why do we want to let low status people to have children?

JCW May 10, 2014 at 10:02 pm

Because forced sterilization based on class, race, and the like, and the people who suggest it, are at a minimum unethical and usually evil.

S May 11, 2014 at 6:11 am

How is making one group of people perpetually pay for the other less unethical or ‘evil’?

BTW, I did not mention forced sterilization. The more obvious solution ( to me anyway) would be to simply stop paying for poor people to have children. Or make welfare conditional on birth control.

Or maybe one doesnt see a problem at all. The point is, Greg Clark’s model does not necessarily imply higher taxes on high status people.

Matt May 11, 2014 at 12:40 pm

Son, it is most def. unethical to deprive people of a fundamentally basic human experience because you want to be able to afford a better car or house, with money you essentially earned off the basis of a trait that you randomly inherited, yes. It isn’t unethical for people to be dumb or bad at making money.

We have to accept that people are not moral saints and that it is, to a degree, a thing we have to work with, but let’s start from calling the unethical unethical and not *encouraging* to be amoral, self obsessed, entitled f*ckups more than they have to be.

S May 12, 2014 at 7:51 am

Not passing your genes off to the next generation is a fundamental human experience. How else do you think evolution works?

Its not random at the level we can predict who is going to have what trait(s). Thats what heritability is. Thats what we are talking about.

In your world, having children you know, we all know, you cant afford, with the expectation that someone else will pick up the tab, is ethical. Meanwhile, not wanting to be the one to pick up the tab is “amoral”, “self obsessed”, and “entitled”. And, of course, the cycle is perpetuated each generation. I have no idea what theory of ethics produces such results, but it sounds retarded.

Moral posturing is boring, “self obsessed” even.

albatross May 12, 2014 at 1:55 pm

Imagine two countries which are identical in every way, including population, with only one exception:

In society #1, most of the children are born to the least intelligent, educated, and successful half of the population.

In society #2, most of the children are born to the most intelligent, educated, and successful half of the population.

Let’s suppose you are able to immigrate into one of these two countries. Let’s further assume that the difference in these reproductive patterns is social, rather than some kind of government policy, so we’re not looking at some kind of eugenic police state or something. Which of the two countries do you imagine would be a better place to live and raise your kids? Which one will have more crime, and which one will have nicer schools?

People buy houses based on a more realistic version of this question all the time, BTW.

Mesa May 10, 2014 at 7:23 pm

The more interesting question is: if the earnings are taxed does the government do a “better” job of spending/investing than the hedge fund guy would. What does that question even mean? IE how would you determine what “better” means? Presumably the hedge fund guy mostly invests his money and the government mostly directs it toward consumption of some kind? Is that better? Why and how? In a utility sense? Is it better to raise interest rates (less investment) in order to smooth incomes (more consumption)? By how much? Maybe it is, but what’s the framework for the trade-off? Can there be an optimal solution where marginal tax rates rise then fall as consumption as a percentage of income drops for the very rich?

derek May 10, 2014 at 8:09 pm

Your county sheriff needs, NEEDS a swat team outfit. And some military grade vehicles.

Nathan W May 11, 2014 at 11:48 am

Well, first we need to introduce the principle of deadweight loss, where the highest quality teaching of the land may demonstrate to us that any time governments do anything that everyone loses, most especially because mounds of cash are buried deep underground where they will never be seen or used again.

Market discipline is real. But it means that governments must design more effective control mechanisms. Everyone makes mistakes.

Businesses must learn or go bust.

We need more transparency so we can hold government to account at all levels. It will help them do a better job and make fewer of those stupid mistakes which we may observe throughout private and public markets.

oakchair May 11, 2014 at 7:52 pm

Well Social secuirty provides 25% more benefits then private hedge funds and other private retirement accounts do. This is proven by the math and the experince of Chile and the UK privitizing their SS systems

bruce May 10, 2014 at 8:57 pm

If only the empire had put a higher tax rate on Jedi knights. Very low elasticity.

Clover May 10, 2014 at 8:57 pm

I used to have libertarian leanings, I was raised as a Republican and libertarian ideas did seem to make sense to my young mind. For example, it made sense to me logically that if you raise taxes on rich people it will deter them from working, and everybody will poorer as a result. But now I see that these ideas simple do not fit with the reality of the world as it exists. The reality is that having 1.1 million dollars a year in income is not very different from having 1.3 million a year, and the government taking more of the rich people’s money probably deters close to 0% of them from continuing to work. The same with upper middle class workers as well, how many doctors are going to stop practicing and become fry cooks if their pay is cut by 5,000$ a year? You need to get into the confiscatory level before that logic starts to make sense.

Japan, like the Nordic countries, refutes neoliberal logic:

http://www.paecon.net/PAEReview/issue23/Locke23.htm

8 May 11, 2014 at 12:00 am

As a former libertarian, I agree with you. But Japan and the Nordic countries also refute neoliberal logic on diversity and culture. People are more willing to pay higher taxes to their own people, and they’re more willing to do so when they see that this is a relatively stable cost. The Japanese poor, you will always have with you. But if Japan was importing high rates of poverty from Papua New Guinea, something is going to break.

Nathan W May 11, 2014 at 11:50 am

Some really funky things are theorized to happen as people get richer.

Instead of curves, there is the pure insanity of a SPIRAL as a utility “curve” as we get to higher and higher levels of income.

Harun May 11, 2014 at 11:19 pm

The big problem is that everyone keeps imagining people with steady 1.1 million incomes year in and year out. They imagine its like being a college professor, only with more money. Every year, you get a big check.

In fact, your huge income years may be the final payout for decades of low remunerated work called “building your business.”

Or you could just have a hot product and make a ton for a few years and then its all over.

This is why having high taxes does in fact discourage investment.

You risk your capital and work really hard and you finally make some money after 3 years of eating ramen, and then suddenly the government appears asking for 50%?

Or you could work for the state of California, get off work early, and pull in 100k salary.

RobZ May 12, 2014 at 3:44 pm

There is a thing called “income-averaging”. (Though these days it’s only the farmers
and fishers that get to use it.)

chuck martel May 10, 2014 at 11:20 pm

The solution to the inequality problem is obvious. Expand the Powerball lottery and make the feds part of it. Have two drawings a day and put a lot of federal reserve enpixelated money in the pot. Fix the drawing so there’s always a winner. Taxes will recapture a lot of the prize, just as they do now. The winners always share most of it with their friends and relatives so it gets spread around. Amazing it hasn’t been implemented long ago.

Scott Young May 11, 2014 at 3:32 am

This conclusion doesn’t follow from the premises. The genetic component of relative status says nothing about the effect of incentives applied as a whole. Imagine two potential sets of policies, one with strong incentives to succeed and one with weak incentives. Now, assuming Clark is correct and success has high heritability we’d expect the same group of people to rise to the top in both situations, but they may rise more strongly in the first than in the second, and correspondingly be more productive in the first than in the second. If Clark, instead, discovered that environment explained 100% of relative status, it also wouldn’t give us any conclusions we can logically infer about incentives.

I also think the Nordic model has some interesting economic lessons about incentives, but this information has zero relevance to that question. The question shouldn’t be what do incentives have on the relative status of subgroups, but the trade (should it exist) between absolute productivity of the nation and inequality.

Scott Young May 11, 2014 at 3:35 am

Perhaps it raises a question about moral dessert (that is, how much do the wealthy *deserve* there wealth) which could at least be argued can’t be derived from genetic inheritances. But if we’re strictly talking about the level of incentives which creates the best utilitarian outcomes (or what is ideal in a Rawlsian view of social justice) it just isn’t a relevant piece of information.

Nathan W May 11, 2014 at 11:53 am

So … we can raise taxes on the poor saps in Ontario who refuse to move to work the tar sands in Alberta, because we already know that they wont move.

Moreover, since they are poor, they may have to work even more hours to meet their basic needs, as opposed to cutting back. Win-win, no? Poor workers get more experience and waste less time in unproductive activities such as spending time with their families, while government can raise additional revenues and firms get more labour or less money.

Fortunately, this is not happening. Instead, the government is negotiating on behalf of the workforce via a provincial pension system (to reduce future liabilities) and tying the minimum wage to cost of living.

Nathan W May 11, 2014 at 11:56 am

Or ….. we can raise taxes on rich people instead, because even though they have really excellent lobbying power to avoid taxes, rich people will locate themselves where they want to live.

Rigid mobility implies that most will stay.

This is an empirical debate, and rock solid and transparent methodological processes, not obfuscation and propaganda, will provide the best answers.

Willitts May 12, 2014 at 10:08 am

Someone won the lottery yesterday. As far as I can tell, my life is unaffected. If the win hadn’t been on the news, I wouldn’t have known or cared, at all.

The interesting thing about the wealthy is that their wealth is usually the accumulation of pennies – thin margins, high volumes.

Simple Machine May 13, 2014 at 6:36 pm

No. The marginal rate is much higher for lower income people, considering the loss of benefits.

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