Assorted links


Myron Scholes? I was wondering what he's up to these days. Shouldn't he be looking for a new group of investors to blow their billions?

4. Why has the Australian property bubble yet to burst?

And why is an opinion piece masquerading as a Wikipedia article? I'm not a sufficiently frequent or knowledgeable Wikipedia editor to be confident about how to mark this for deletion, but it really doesn't ring true.

Tyler, to avoid getting into the specifics about defining "bubbles", a better question might be to ask what the differences are between the AUS and US housing markets in the nearly simultaneous run-up and divergent 'crash'.

1. Regional economy (like the US)
2. Steady employment figures over the last 20 years (unlike the US)
3. Fewer of the nasty incentives so pervasive in the US housing market (I cite a variety of Russ Roberts interviews for this one)
4. Inelastic supply
5. Flat growth over the last 7 years or so

Historical price data is hard to come by in Australia, but the biggest crash according to LMI (mortgage insurance) default statistics occurred in the late 80s with a recession coinciding with a particularly nasty housing downturn in Queensland, Australia's "sunshine state".

The early 2000s showed a similar drop in housing activity, but the lack of coincident recession meant that people were able to stay in their homes.

What would the price scenario look like if people weren't forced to sell their home because of unemployment but prices are still high? Nominally flat.

That's my narrative of it.

2. It's worse. It's a strawman hidden in the inflation grass. The top marginal rate is increased every year by the rate of inflation. So, even if taxing lawyers did affect GDP you wouldn't be able to tell from spikes on a graph of nominal tax rate versus nominal GDP. To start, I don't say that taxes should be just and matched to costs as feasibly as possible solely because it makes for nice GDP numbers, but okay, we'll play along.

The problem with smart guys is though you might want to give them the benefit of the doubt, you have to assume they know better.

"That said, it's obvious that there is no correlation between higher marginal tax rates and slowing economic activity. During the period 1951-63, when marginal rates were at their peak—91 percent or 92 percent—the American economy boomed, growing at an average annual rate of 3.71 percent."

So coming out of the Depression and WWII with no competitors didn't account for nothing? A lack of statistical correlation proves no effect...when NO other variables are held constant?

"the proposition that moderate, as opposed to dramatic, increases in marginal rates have any impact on the willingness of the wealthy to participate in the economy."

For those taking notes. First, get a law degree. Then pick the wrong variables. Then keep nothing else constant and move the one variable an insignificant amount. Finally hand-wave and scream from the rooftops how you've proven your point. One caveat, just try not to get caught with hookers.

caveat bettor,

My response to Spitzer is that marginal tax rates have been dropping across the planet over the past two decades and that at the very same moment in time the world has seen some dramatic growth. What Spitzer also doesn't get is that even small positive changes in GDP have dramatic effects over the long term; or, looking at in the opposite direction, if a higher marginal tax rate decreases GDP by say 0.1% annually over time that adds up.

Andrew & nelson,

People tend to forget that even before the "prostitution scandal" that the Spitzer administration was already in trouble over "Troopergate."

"or maybe this is a joke?"

Was that a cute way of hinting to the clueless or did you actually have doubts?

A dead giveaway is the "" in the URI.

Marriage and jobs: we're slowpokes in both.

I would guess that the explosive increase in college participation has something to do with that.

"2. Eliot Spitzer on taxes and growth."

Marginal tax rates are hardly the only factors influencing GDP growth. Over the past 80 years, other factors have swamped the effects of tax rate changes.

One major influence on GDP has been the growth in the workforce. The post World War II baby boom no doubt accounted for a large part of the GDP growth in 1965 to 1980. In addition, over the entire period covered by Spitzer's chart, the participation of women in the workforce increased from 20% to 75%.

Even if we adjusted GDP growth for changes in workforce size, we'd still have problems isolating the impact of marginal tax rates on GDP growth.

Post World War II automation no doubt had a huge impact on GDP growth. Not only did computers eliminate many low productive office and factory tasks, but mechanization of agriculture freed up many workers from the manual labor formerly required on farms.

At the same time, growing household income coupled with immigration of low-skilled workers distorted the trend in GDP growth per worker. As American households became wealthier, they transferred many household tasks such as lawn care, cooking, and home maintenance to the paid workforce.

IMO, Spitzer's simple chart tells nothing about the relationship of marginal tax rates and GDP growth. GDP growth is influenced by too many other factors, of which I've touched on only a few.

Does anyone speak Danish? Could they give a summary of what the news anchors were really talking about?

I don't speak Danish (I do speak German, but they are not as close as most Americans think), but the subtitles seem to match the spoken text.

To be fair, Spitzer does include many caveats, but than goes on to say that no visible correlation means no effect.

And how anyone can make strong claims about the last two decades of cause and effect fascinates me. Did the Reagan/Bush/Clinton/Bush era cause growth or bubbles. Surely people accept that some of the GDP growth was not real before they argue over which parts were fake, good, what caused it, etc. I have bets and they are based on theories not empirics. Noone else has to tag along.

I like dogmatics better than pragmatists. Pragmatists are no less sure of themselves and at least dogmatics tend to tell you why they are nuts.


I'm a Dane. The written translation matches the spoken words.

Under Bush we had the lowest marginal tax rates in the post WW II era. We also had the weakest economic expansion on record, the second worse recession in US history, a 40% decline in the stock market, over a one-third drop in the trade weighted dollar -- over 40% from the peak to the trough -- and a swing in the federal budget from a surplus greater than 1% of gdp to a deficit equivalent to some 10% of gdp before Obama took office.

Gee aren't low marginal tax rates great.

7. Stan Liebowitz and a colleague showed last year that internet was not parasitizing TV as thought:

I regularly check his SSRN page because he's one of the few economists who talk about the media who seems to know a lot of facts to draw on.

High house prices in Australia may be kind of silly, but it's not really a bubble. People still spend within a quarter of a camel spit of what they used to on housing as they did 20 years ago, but there has been a huge fall in interest rates and a lot of sustained economic growth in that time. This means people can afford to pay a lot more for a house than they could a couple of decades ago and this has pushed prices up a lot. The run up in prices had to stop at some point, and it has stopped, disapointing many people who expected their houses to continue to rise in price, but there's not bubble like there was in the US. What we do have is housing stock skewed towards large family homes at a time when society is producing more couples and singles. I'm guessing this will lead to a "boom" in unit construction and subdividing existing houses.

Adam: "isn't the relevant variable for spitzer's argument GDP/capita?"

Perhaps GDP/working age population. The non-working portions of the population - children and the elderly - have varied quite a lot over the past century, and would thus distort the measure. Also, military contributions overseas are not included in GDP, so wartime statistics would need to be adjusted for that as well.

I think it should be GDP per available worker, but I'm not sure we have such a statistic for the entire century Spitzer was "analyzing". For most of that 100 years, the contribution of less than half of the female population was counted in GDP. The work of housewives was not counted because it was not paid work.

Comments for this post are closed