from the rooftops
Many top earners during the high-rate era, such as politicians Dwight Eisenhower and Ronald Reagan, entertainer Jack Benny and librettist Alan Jay Lerner, didn’t pay the top rates. In 1952, for example, when the top rate was 92%, the highest-earning 1% of taxpayers had an average rate of 32%, according to Elliot Brownlee, a tax historian and emeritus professor at the University of California, Santa Barbara.
“When top tax rates were high, there was always a large gap between the stated rates and what the highest earners actually paid as a percentage of their income,” says Joel Slemrod, an economics professor at the University of Michigan.
This one would not work today:
Gen. Dwight Eisenhower also successfully argued that $635,000 he earned from his 1948 memoir, “Crusade in Europe,” should be treated as a capital gain, saving him as much as $400,000 of tax, says Joseph Thorndike, a historian with Tax Notes magazine.
Here is the Laura Saunders WSJ piece.
We find that taxes matter for innovation: higher personal and corporate income taxes negatively affect the quantity, quality, and location of inventive activity at the macro and micro levels. At the macro level, cross-state spillovers or business-stealing from one state to another are important, but do not account for all of the effect. Agglomeration effects from local innovation clusters tend to weaken responsiveness to taxation. Corporate inventors respond more strongly to taxes than their non-corporate counterparts.
Our findings provide empirical evidence that ride-sharing services such as Uber significantly decrease the traffic congestion after entering an urban area.
Simple correlations show that Protestantism is associated with economic freedom, Islam is not, with Catholicism in between. The Protestant ethic requires economic freedom. Our empirical estimates, which include religiosity, political institutions, and other explanatory variables, confirm that Protestantism is most conducive to economic freedom.
…the idea that China services, which are already a large share of output, can and will just take up the slack as industry shrinks overlooks that most services are directly tied to the weakening sectors of property and industry. As George Magnus notes, the tertiary sector is concentrated in finance, property, and wholesale and transport distribution, not in business, IT, professional, health and education services. Despite its large services sector, China is much less diversified than the
Furthermore, absent new forex controls, if the PBOC broadly holds the band and runs down reserves without sterilizing, any PBOC interest rate cuts would be China-demand-contractionary. So alongside interest rate cuts, the PBOC would have to fully sterilize just to maintain the demand status quo, let alone to stimulate. Alternatively, if it lets the Yuan really float (down), it will be disorderly for lack of a policy framework to back a float, and it will set off major global currency shocks.
That is from Peter Doyle (pdf), with further points of interest, via Dani Rodrik.
Gary Burtless writes:
Instead of subsidizing low-wage employers, most [government] assistance programs reduce the availability of low-skill adults who are willing to work for low pay and lousy benefits. By shrinking the pool of workers willing to take the worst jobs, the programs tend to push up rather than push down wages at the bottom of the pay scale. Low-wage employers do not receive an indirect subsidy from the programs. Many must pay somewhat higher wages or recruit more intensively to fill their job vacancies.
There is much more at the link, including a considerations of programs which are an exception to this generalization, such as EITC.
Donald Shoup, whose work on parking has been featured on MR on several occasions, is retiring. Patrick Siegman, “the first Shoupista”, has written an appreciation which includes this excellent quote from Shoup’s classic study, Cashing Out Employer-Paid Parking:
Minimum parking requirements in the planning profession are closely analogous to bloodletting in the medical profession. For over two thousand years doctors prescribed bloodletting to cure most diseases, and medical textbooks contained elaborate parking-requirement-like tables telling exactly how much blood should be let from exactly which part of the body, and when, for every disease…
One strong similarity between bloodletting and minimum parking requirements is the general public acquiescence to both practices without any scientific research on their effects…
Another similarity between bloodletting and minimum parking requirements is the harm caused by both practices. In the case of bloodletting, the problem was magnified because physicians didn’t clean their instruments before proceeding to the next patient. In the case of parking requirements, the problem is magnified when planners require far more parking than is demanded even when all parking is free. Recall here that Willson (1992) found that the number of parking spaces required by zoning ordinances was double the peak accumulation of cars parked at suburban office sites in Southern California.
A final similarity between bloodletting and minimum parking requirements is that the practice of bloodletting gradually fell out of use, and minimum parking requirements in zoning ordinances are gradually being replaced by parking caps.
For much of his career, Shoup was a lonely voice shouting in the wilderness but he shouted reason and fact and his work has had increasing influence in recent years.
Addendum: Here is Tyler’s NYT column on Shoup’s work, Free Parking Comes at a Price.
Several years ago I reported on a very large, randomized experiment (JSTOR) on teacher performance pay in India that showed that even modest incentives could significantly raise student achievement and do so not only in the incentivized subjects but also in other non-incentivized subjects, suggesting positive spillovers. The earlier paper looked at the first two years of the program. One of the authors, Karthik Muralidharan, now has a follow-up paper, showing what happens over 5 years. The results are impressive and important:
Students who had completed their entire five years of primary
school education under the program scored 0.54 and 0.35 standard deviations (SD) higher than
those in control schools in math and language tests respectively. These are large effects
corresponding to approximately 20 and 14 percentile point improvements at the median of a
normal distribution, and are larger than the effects found in most other education interventions in
developing countries (see Dhaliwal et al. 2011).
Second, the results suggest that these test score gains represent genuine additions to human
capital as opposed to reflecting only ‘teaching to the test’. Students in individual teacher
incentive schools score significantly better on both non-repeat as well as repeat questions; on
both multiple-choice and free-response questions; and on questions designed to test conceptual
understanding as well as questions that could be answered through rote learning. Most
importantly, these students also perform significantly better on subjects for which there were no
incentives – scoring 0.52 SD and 0.30 SD higher than students in control schools on tests in
science and social studies (though the bonuses were paid only for gains in math and language). There was also no differential attrition of students across treatment and control groups and no
evidence to suggest any adverse consequences of the programs.
…Finally, our estimates suggest that the individual teacher bonus program was
15-20 times more cost effective at raising test scores than the default ‘education quality
improvement’ policy of the Government of India, which is reducing class size from 40 to 30
students per teacher (Govt. of India, 2009).
In another important paper, written for the Government of India, Muralidharan summarizes the best research on public schools in developing countries. His conclusion is that there are demonstrably effective and feasible policies that could improve the public schools thereby increasing literacy and numeracy rates and raising the incomes of millions of people.
The generation entering Indian schools today is the largest that has ever, or for the foreseeable future, will ever enter Indian schools so the opportunity to raise educational quality for essentially the entire Indian workforce over the next several generations is truly immense.
Matt Yglesias shouts it from the rooftops on occupational licensing:
Licensing requirements…are by far the best statistical predictor of business-friendliness, for those subjected to them. And unlike taxes or environmental rules, these have spread like kudzu, with little scrutiny and often scant policy rationale.
A recent comprehensive survey of state licensing practices by the Institute for Justice reveals little consistency or coherent purpose behind most licensing. Nevada, Louisiana, Florida, and the District of Columbia, for example, all require aspiring interior designers to undergo 2,190 hours of training and apprenticeship and pass an exam before practicing. In the other 47 states, meanwhile, there’s no legal training requirement. My friends and co-workers living in D.C.’s Virginia and Maryland suburbs appear to get on fine with unlicensed interior decorators, and all across America, amateurs have decorated their own homes without imperiling public safety.
Almost all states—though not Alabama or the anarchic United Kingdom—require barbers to be licensed, but the specific requirements seem to vary arbitrarily. New York barbers need 884 days of education and apprenticeship. Across the river in New Jersey, it’s 280. But getting one’s hair cut in New Jersey (to say nothing of England) is hardly a life-threatening gamble.
…a wide range of these rules could be done away with entirely at basically no risk. Regulation is needed when it would make sense for a firm to deliberately engage in malfeasance. Dumping harmful toxins into the air is highly profitable unless it’s prohibited. Financiers can draw huge bonuses by taking on too much risk, only to wreck the economy later. In other occupations, though, shoddy work brings its own punishments. An interior decorator who can’t get recommendations from satisfied customers probably won’t remain an interior decorator for long.
In these cases, licensing rules raise the prices the rest of us pay, make it difficult for successful entrepreneurs to expand their businesses, and are often a major barrier to employment for the most vulnerable populations.
We have covered these issues before on MR but sometimes you just have to KEEP SHOUTING.
If you measure people's thoughts, rather than asking them about their feelings, it seems they really enjoy the time they spend with their kids. Here is an excerpt from BPS Research Digest:
In terms of pleasure, the results confirmed earlier findings,
suggesting that we spend an awful lot of time doing things we don't
find pleasurable, including "work" and "shopping". Out of 18 key
activities, "time with children" and "sex" both came in around
mid-table, far below "outdoor activities" and "watching TV". However,
consideration of the ratings for "reward" (as opposed to pleasure) told
a rather different story, with "work" now the top scorer, and "time
with children" not far behind.
Commuting, however, cannot be saved by a similar move.
There is less happiness inequality today than in the 1970’s or 1980’s. And this has occurred despite large increases in income and consumption inequality. Betsey Stevenson and I spell out these facts in a lot more detail in a new paper, “Happiness Inequality in the United States,” forthcoming in the Journal of Legal Studies.
That’s Justin Wolfers, here is much more. This is one reason — but not the only reason — why so many moral arguments from the Left fall on deaf ears when it comes to most Americans. Of course happiness inequality is more fundamental than either income or wealth inequality because we care about outputs, not inputs.
By the way, here is a roof access cage ladder.
Shark’s Fin and Sichuan Pepper: A Sweet-Sour Memoir of Eating in China, by Fuchsia Dunlop, due out in mid-April.
She is one of the writers I revere most. And yes, I know she is usually a cookbook writer, but I do mean her writing, not just her recipes. The more general point is you should expect to see many of the best writers, today, in new media and genres, not in the old. I saw notice of this, by the way, in the vastly superior to almost anything else London Review of Books.
We can’t just bargain down the prices of pharmaceutical drugs without adverse consequences. It is hard to measure the effects here, but yesterday I came across this piece of serious empirical work:
EU countries closely regulate pharmaceutical prices whereas the U.S. does not. This paper shows how price constraints affect the profitability, stock returns, and R&D spending of EU and U.S. firms. Compared to EU firms, U.S. firms are more profitable, earn higher stock returns, and spend more on research and development (R&D). Some differences have increased over time. In 1986, EU pharmaceutical R&D exceeded U.S. R&D by about 24 percent, but by 2004, EU R&D trailed U.S. R&D by about 15 percent. During these 19 years, U.S. R&D spending grew at a real annual compound rate of 8.8 percent, while EU R&D spending grew at a real 5.4 percent rate. Results show that EU consumers enjoyed much lower pharmaceutical price inflation, however, at a cost of 46 fewer new medicines introduced by EU firms and 1680 fewer EU research jobs.
Ed Glaeser writes in his new abstract:
Does bounded rationality make paternalism more attractive? This Essay argues that errors will be larger when suppliers have stronger incentives or lower costs of persuasion and when consumers have weaker incentives to learn the truth. These comparative statics suggest that bounded rationality will often increase the costs of government decisionmaking relative to private decisionmaking, because consumers have better incentives to overcome errors than government decisionmakers, consumers have stronger incentives to choose well when they are purchasing than when they are voting and it is more costly to change the beliefs of millions of consumers than a handful of bureaucrats. As such, recognizing the limits of human cognition may strengthen the case for limited government.
1. Soft paternalism is an emotional tax on behavior which yields no government revenues.
2. Soft paternalism can cause bad decisions just as easily as hard paternalism.
3. Public monitoring of soft paternalism is much more difficult than public monitoring of hard paternalism.
4. While hard paternalism will be limited by public opposition, soft paternalism is particularly attractive because it builds public support.
5. Soft paternalism can build dislike or even hatred of subgroups of the population.
6. Soft paternalism leads to hard paternalism.
7. Soft paternalism complements other government persuasion.
Soft paternalism requires a government bureaucracy that is skilled in manipulating beliefs. A persuasive government bureaucracy is inherently dangerous because that apparatus can be used in contexts far away from the initial paternalistic domain. Political leaders have a number of goals, only some of which relate to improving individual well-being. Investing in the tools of persuasion enables the government to change perceptions of many things, not only the behavior in question. There is great potential for abuse.
Thanks to Daniel Klein for the pointer.
While the prediction that rising market toughness could generate an increase in concentration and the profit share may seem counterintuitive, the ambiguous relationship between concentration, profit shares, and the stringency of competition often arises in industrial organization.
That is from Autor, Dorn, Katz, Patterson and Van Reenen. In essence, rising market toughness reallocates a greater share of output toward highly productive superstar firms, which are more productive but also have higher fixed costs and mark-ups over marginal cost.
Have you ever wondered how “rising Chinese competition devastated parts of the American working class” and “market power is up” both could be true? Well, this paper is the best available attempt to square that circle. Market power is up as measured by price to marginal cost ratios, or concentration ratios, but in fact competition is much tougher than it used to be and the antitrust authorities should not (at least in this regard) be blamed for their laxness.
Very few people have put in the time to understand this point, which I should add comes from some of the top IO economists in the field.
Have I mentioned that changes in concentration are correlated with the most dynamic economic sectors?