Assorted links

1. Can complex financial assets be booby-trapped?

2. Jon Chait makes the case against prizes.

3. Bruce Bartlett opposes cutting the payroll tax.

4. Which countries produce the most beef? (put the cursor on the balloons)

5. Metaphors: people mostly describe their lives in terms of a "journey"; is this just our tendency to impose false or misleading narrative on events?  Poorer people, however, are more likely than richer people to describe their lives as a "battle."

6. John Nye on inequality and positional goods (read the whole symposium).

Comments

A good idea would be to cut the payroll tax for both new hires and for new employees for a defined period of time. It would also be good to not apply state unemployment taxes to new hires.

This would have the added advantage of defining every new job that was created so there wouldn't be any debate about the plan's effectiveness or lack thereof.

Bartlett argues that the entire benefit of a across the board cut would pass through to employees. I don't know that I agree with that point of view, but it would clearly have to be shared with the new hire version or the employer wouldn't have an incentive to take the risk.

From the employees point of view, this plan would create an incentive to reduce the "stickiness" of wage rates, allowing them to float down in response to both the downturn and deflationary pressures.

From the government's point of view, it saves unemployment costs, creates demand, and doesn't reduce payroll taxes, at least for those jobs that wouldn't have been created anyway.

Bartlett is apparently arguing on the basis that employees have so much bargaining power that they would capture all of the gains of a payroll tax cut, even if cut from the employer's side. Is that realistic?

The bit about the contribution baffles me. Why not simply move money from the General Fund to the Social Security Trust Fund to "replace" the money? (If you argue that that's an accounting fiction, well, then that makes the whole mess about it being a forced savings contribution plan a myth then too.)

On the Nye piece --

One wonders whether there might be some mechanism -- other than scarcity -- whereby consumer preferences differentiate. Such mechanism would be pull rather than push-based -- i.e., consumers are not forced to substitute away from positional goods because of scarcity, but affirmatively seek out substitutes for other reasons. What other reasons? Self-expression? Carving out cultural identity? But I admit that endogenous differentiation in preferences goes against social efficiency when the goods in question are non-positional rather than positional.

Which makes me wonder whether there's some temporal scheme to how positional goods emerge...

OOPPSY. supposed to read "Complex derivatives weren't too complex to understand". kinda like refuting the post makes it true...

I found Bartlett's piece to be wildly confused. Does anyone under the age of 40 (even 50) actually believe your Social Security taxes are a "contribution" and not a tax? Social Security is not saving venue, it's a cash flow-based ponzi scheme. Bartlett talks about the first Social Security collectors getting far more than they paid out as if it were a good thing. Clearly that situation will never happen again, and it is not sustainable. Then there is the fact that money is being taken from me in a compulsory manner (as if government knows I need to save this amount of my paycheck better than I do). How can this not be a huge negative discount factor on the benefits? What if I don't even live to 63, 65, 70, or whatever the SS age is when I'm old enough to collect (if it exists at all)? Not to mention that I believe my education and self interest will allow me to get a far better return on this "investment" than a disinterested lifetime bureaucrat.

Also, obviously the business won't collect 100% of the tax cut, but who cares? If people really are just starving on the streets like Democrats proclaim, I doubt people are going to do a classic "save the entire surplus to even out utility", especially given the job situation will certainly improve. Bartlett also completely ignores the fact that employers have to provide a matching payment to the SS system. Assuming all workers' salaries remain the same, workers will get half of the surplus and employers will get the other half. This will give consumers a little bit more money to spend (or pay off debt), and it will give employers some discretionary revenue (either they pay it out to other employees or invest it).

Besides, I thought the argument ran that it decreases the marginal cost of a worker. If a worker brings $60,000 of talent to the business, but costs the business $62,500, he won't be hired. However, if the employer gets a tax cut, the worker may now be work hiring. This is especially true if you assume that employers will capture more of the surplus in the case of new workers (Barlett has a point here, although he never makes it, that if the cut is assumed to be very temporary this effect will be lessened). I think a key point is that things will and are getting better, so all that's really needed to do is push employers over the edge to hire someone. While a person may be close to the edge of being worth hiring now, many of them will be more valuable when the economy picks up and business starts booming.

In the end, the payroll tax cut would do more in my view than a lot of these other idiotic ideas (cash for clunkers, the "stimulus", carbon taxes to bring us green jobs). Social Security is a broke, flawed idea, and it needs to and will be dramatically changed soon. Bringing a quicker end to a program that no sane person can believe will last is hardly the highest of my concerns.

I think this seals it. Bruce Bartlett has officially let his disdain for W to drive him off the deep end. While I agree that Republicans see tax cuts as a cure for everything including the common cold, his analysis on cutting the payroll tax leaves me saying . The whole point of cutting the payroll tax isn't to create a bunch of new jobs; it's to improve operating margins and allow businesses to keep the workers they have. I'm going to ignore the fact that he called SS a contribution.

Check Argentina at the beef country, that's called FAILED STATE (even though i think that every single state is failed)

Seconding the Nye nomination to MR guest-blog.

people mostly describe their lives in terms of a "journey";

Your existence is happenstance. So is your life. You have a smidgen of control.

My problem with Bartlett's argument is he fails to mention the evidence that is absolutely clear and incontrovertible:

Tax cuts kill jobs!

The data shows tax cuts kill jobs, often overcoming the stimulation of Keynesian deficit spending.

If tax cuts stimulated the economy, then the eight tax cuts in nine years since 2001 would have created the hottest economy in history.

As it was, only the massive infrastructure Keynesian deficits created and boost to employment. Remember the construction projects in Iraq creating shortages of building materials in the US, and the higher costs of construction? Then as that wound down, the hurricanes created new government infrastructure spending as well as lots of cash flowing to the victims of the hurricanes in relief.

The only thing that reversed the job losses that began after the 1981 tax cuts were the tax hikes that started pulling back those tax cuts and restarted government infrastructure spending. Not to mention the major hike in Social Security rates. While the claim is made the tight money was the cause, the money was tight until the tax cuts which did slow employment growth for the first six months of Reagan's term, but once the tax cuts occurred, the government sucked up all the money created by the Fed starving business of credit.

It was that insight that led Clinton's Treasury Sec to push for the tax hikes on top of the Bush tax hikes. By cutting private consumption with higher taxes, the government needed to borrow less, and businesses could now get credit for worthwhile investments, nudged by the government support for extending the internet from the research labs to the public, as well as the major work in super computing which pushed the Human Genome project to completion, into lots of high tech investment.

The most interesting thing about the beef chart is the rise of Brazil as a beef producer. They also improved the quality of their beef through clever breeding. At this point, they produce similar quality beef as the Argentineans in spite of having a less cattle-friendly weather (warmer and more humid).

Who is that weird looking guy, John Nye?
I note that he did not earn a Wikipedia page, for whatever it's worth.

Whole discussion is based on Will Wilkinson opus. And any rational person knows that Will Wilkinson is a lowly-paid US Chamber of Commerce apparatchik.

I sorta expected better from Tyler Cowen blog.


people mostly describe their lives in terms of a "journey"

Not so much a journey as the proverbial long strange trip.

Where are we going, and why are we in a handbasket?

I like the gapminder. A useful tool. Thank you.

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