February 13, 2003

Hal Varian Sees Inflation in Our Future

Hal Varian (whom I rarely see on the Berkeley campus, even though his office is only one building over) offers his prescriptions for what should be done in the short run, the medium run, and the long run as far as U.S. fiscal policy is concerned.

Most interesting, however, is his forecast that feckless politicians combined with the structural features of American politics are likely to push us toward much higher inflation--once the president has obtained "a pliable Federal Reserve Board" which "can probably be arranged."


Deficits and Political Pain: ...let me offer my own prescriptions for the short, medium and long term.

Though there is a good chance that the economy will be significantly stronger this year, it wouldn't hurt to have some modest short-run fiscal stimulus. Consumers have kept on spending; the real budget shortfall is coming from business spending and state government cutbacks. A sensible stimulus package would involve a temporary investment subsidy, like accelerated depreciation or even an old-fashioned investment tax credit, along with direct grants to the states.

State tax increases and budget cuts could well exert a significant fiscal drag on the economy in the next year, so some attempt to moderate their impact would be prudent.

In the medium term, we have to address the operational budget deficit. The economically sensible thing would be to roll back future tax cuts from the 2001 act and reform the alternative minimum tax. Unfortunately, this is not easy to sell politically: those who expect to gain from future tax cuts simply do not understand that much of the tax saving they anticipate will be taken away by the alternative tax. Congress will have to change the alternative minimum tax, but this makes the scheduled tax cuts much more costly in terms of their impact on the deficit than they now appear to be.

Finally, we have to confront the retirement program imbalances. There is no magic bullet for Social Security. Fixing it will involve some combination of increasing the retirement age, cutting the growth rate of benefits and increasing contributions. Medicare and Medicaid will be an even tougher problem.

Mr. Greenspan said that "there should be little disagreement about the need to re-establish budget discipline." But it is always easier to cut taxes than cut spending.

What will happen if nothing is done? If deficits continue to accumulate, the temptation to print money to pay our debts will become almost irresistible. Inflation is all too tempting as an "easy" way to avoid the political pain associated with tax increases or budget cuts.

All a president needs is a pliable Federal Reserve Board, and this can probably be arranged sometime in the next 10 or 15 years. Inflating away the debt is not pretty, but it may well end up being the most politically expedient solution to the burden of accumulated deficits...

The New York Times Sponsored by Starbucks

February 13, 2003

Deficits and Political Pain

By HAL R. VARIAN

ALAN GREENSPAN, the Federal Reserve chairman, called the latest forecasts of budget deficits "sobering." A better word might be "shocking."

A recent study by the economists Alan J. Auerbach, William G. Gale, Peter R. Orszag and Samara R. Potter, "Budget Blues: The Fiscal Outlook and Options for Reform," lays out the facts (emlab.berkeley.edu/users/auerbach).

The economists generate their forecasts by starting with the Congressional Budget Office forecast from August 2002, then adjusting the figures to reflect more plausible assumptions. (The most recent forecasts, alluded to by Mr. Greenspan, yield even more pessimistic results.)

Their conclusion is that current patterns of spending and revenue are just not sustainable. Large future tax increases or drastic spending cuts are virtually inevitable.

The economists' calculations involve four adjustments to budget office figures.

The first is for federal discretionary spending, the money appropriated by Congress each year. The budget office assumes that real discretionary spending will be constant at the level given in the first year of the 10-year forecast. A more appropriate assumption, the economists argue, is that real discretionary spending will grow at the same rate as gross domestic product, as it has in the past.

The second adjustment has to do with temporary tax cuts. The budget office assumes that all temporary tax provisions will expire as scheduled, while a more likely outcome is that most will be extended.

This adjustment is particularly important for the 2001 Bush tax cuts, which are classified as "temporary" for purposes of official budget calculations.

The third adjustment involves the alternative minimum tax. That affects only a small fraction of the population now but, unlike many taxes, is not adjusted for inflation. Even with today's modest inflation, it will kick in for many middle-income taxpayers in the next decade, affecting more than 36 million of them by 2010. This is simply not politically acceptable, so the economists assume that in the future the tax will apply to the same fraction of the population that it does now, about 3 percent.

The final adjustment involves Social Security, Medicare and other retirement programs. These programs now enjoy significant surpluses, which help mask the deterioration elsewhere in the budget. If you want a clear picture of the structural spending imbalance, it's best to take these retirement programs out of the calculations entirely.

So what is the bottom line?

The August budget office forecast was for a $1 trillion surplus over the next 10 years. The first three adjustments, which involve more realistic assumptions about spending and tax policy, yield a $1.9 trillion deficit. But moving the retirement surpluses off budget yields a 10-year deficit of $5.4 trillion.

That is bad enough, but after the next 10 years, things look even bleaker. Medicare, Medicaid and Social Security are certain to grow faster than national income in the years to come because of the aging population. The economists estimate that covering the long-term deficit will require an increase in federal revenues or a decrease in federal spending of 20 to 38 percent.

Note that there are two distinct causes of the projected deficit. Over the next 10 years, the basic deficit is on the operations side: the government is simply spending more than it brings in, to the tune of $5.4 trillion. But in this same period, the retirement programs bring in more than they pay out, reducing the deficit to "only" $1.9 trillion.

After 2012, the retirement fund surpluses shrink and eventually become deficits. According to the economists' projections, the spending on Social Security, Medicare and Medicaid will grow from 9 percent of G.D.P. in 2001 to 21 percent by 2075. "These three programs," the economists say, "would ultimately absorb a larger share of G.D.P. than does all of the federal government today."

The authors make some eminently sensible suggestions about how to deal with this problem, but let me offer my own prescriptions for the short, medium and long term.

Though there is a good chance that the economy will be significantly stronger this year, it wouldn't hurt to have some modest short-run fiscal stimulus. Consumers have kept on spending; the real budget shortfall is coming from business spending and state government cutbacks. A sensible stimulus package would involve a temporary investment subsidy, like accelerated depreciation or even an old-fashioned investment tax credit, along with direct grants to the states.

State tax increases and budget cuts could well exert a significant fiscal drag on the economy in the next year, so some attempt to moderate their impact would be prudent.

In the medium term, we have to address the operational budget deficit. The economically sensible thing would be to roll back future tax cuts from the 2001 act and reform the alternative minimum tax. Unfortunately, this is not easy to sell politically: those who expect to gain from future tax cuts simply do not understand that much of the tax saving they anticipate will be taken away by the alternative tax. Congress will have to change the alternative minimum tax, but this makes the scheduled tax cuts much more costly in terms of their impact on the deficit than they now appear to be.

Finally, we have to confront the retirement program imbalances. There is no magic bullet for Social Security. Fixing it will involve some combination of increasing the retirement age, cutting the growth rate of benefits and increasing contributions. Medicare and Medicaid will be an even tougher problem.

Mr. Greenspan said that "there should be little disagreement about the need to re-establish budget discipline." But it is always easier to cut taxes than cut spending.

What will happen if nothing is done? If deficits continue to accumulate, the temptation to print money to pay our debts will become almost irresistible. Inflation is all too tempting as an "easy" way to avoid the political pain associated with tax increases or budget cuts.

All a president needs is a pliable Federal Reserve Board, and this can probably be arranged sometime in the next 10 or 15 years. Inflating away the debt is not pretty, but it may well end up being the most politically expedient solution to the burden of accumulated deficits.

Posted by DeLong at February 13, 2003 11:02 AM | TrackBack

Comments

Brad -

Notice that Alan Greenspan considerably softened any criticism of the Administration tax cut plans in day two of Congressional testimony. Notice also that the Administration is waving about the policy endorsements of hundreds of economists. Also, still, the President is emphasizing how much a stock dividend tax cut will do for "seniors."

How many seniors have a million dollar taxable stock portfolio, which would pay about 16,000 dollars a years in dividends? Bond dividends, of course, are not to be tax favored. Oh well.

Posted by: anne on February 13, 2003 12:10 PM

http://www.nytimes.com/2003/02/13/politics/13BUSH.html

New York Times -

In a second consecutive day of testimony on Capitol Hill, Mr. Greenspan, a Republican who was first appointed to his post by President Ronald Reagan in 1987, seemed to want to mend fences with Mr. Bush and his party....

Where Mr. Greenspan inveighed about the dangers of deficits on Tuesday, he played down those concerns today and asserted that the worst of the budget problems would only arise once the current generation of baby boomers began to retire in 2010....

Mr. Greenspan was warmer today than on Tuesday about the president's dividend tax proposal. He said that eliminating taxes on most stock dividends would "almost surely increase the aggregate of economic activity" over the long term and might provide a small immediate boost as well.

"I strongly support it," he told the committee....

Posted by: anne on February 13, 2003 12:27 PM

Brad - These past 2 years you may have been significantly over estimating the probity of Alan Greenspan. First, the was the dread surplus we needed to be so worried about. Now, the deficit is not so bad since it will only be a problem after 2010. Bah....

Alan Greenspan is after all a good Republican and after the Administration had a chance to register criticism of his remarks before the Senators, the remarks were changed for the Representatives.

Posted by: dahl on February 13, 2003 12:47 PM

I don't see how inflation is supposed to seriously alleviate the debt financing problems of future entitlements, being that SS benefits are indexed to wages and medical costs for seniors wouldn't seem a likely candidate to rise by less than the inflationary average.

With the income tax now indexed to inflation one won't even get the bracket creep that helped pay the bills during the Jimmy Carter years.

Posted by: Jim Glass on February 13, 2003 01:20 PM

By the by. Low interest rates are going to reduce the incomes of older women for some time, and we are experiencing an awful bear market for stocks. No matter the rise in housing prices, the retirements of older women appears to me a worrisome problem.

The S&P is down about 44%, some 3 years into the bear market. Yes, I think we should be worried about this astonishing loss of retirement wealth over 3 years.

Please do comment, for I believe this is fully related to the subject.

Posted by: anne on February 13, 2003 01:33 PM

" How many seniors have a million dollar taxable stock portfolio, which would pay about 16,000 dollars a years in dividends? Bond dividends, of course, are not to be tax favored. Oh well.""

Certainly more seniors will have such stock portfolios than any other age group. But, "bond dividends"?

Posted by: Patrick R. Sullivan on February 13, 2003 03:32 PM

I don't see how inflation is supposed to seriously alleviate the debt financing problems of future entitlements, being that SS benefits are indexed to wages and medical costs for seniors wouldn't seem a likely candidate to rise by less than the inflationary average.

It won't, but it'd do quite a job on the outstanding stock of government bonds.

Posted by: Jason McCullough on February 13, 2003 03:57 PM

Isn't Hal a microeconomist, famous for (the excellent) Information Rules? What's he doing commenting on Macro-stuff?

Posted by: Tom on February 13, 2003 04:06 PM

Isn't Hal a microeconomist, famous for (the excellent) Information Rules? What's he doing commenting on Macro-stuff?

Posted by: Tom on February 13, 2003 04:06 PM

I've been thinking this for some time, now. It's an easy way to pay for the damn war, which is going to be damn expensive. It also will probably impoverish more people whose primary investments are savings while improving the financial position of the very wealthy, which seems to be a theme of this administration's economic policies.

Posted by: Randolph Fritz on February 13, 2003 08:56 PM

So how high will rates go before the inevitable tax rises are imposed? And when will this occur.

My guess is that we will see rates of 10-12% by 2006. Once the top 1% has invested in 30 year bonds, heavy consumption taxes can replace the income tax, driving rates down.

It's so much easier to get rich by putting people into debt slavery than by creating wealth.

Posted by: Charles Utwater II on February 13, 2003 10:57 PM

>>Isn't Hal a microeconomist, famous for (the excellent) Information Rules? What's he doing commenting on Macro-stuff?>I've been thinking this for some time, now. It's an easy way to pay for the damn war, which is going to be damn expensive.<<

Funny you should say this, Keynes had more-or-less the same idea (see 'How to Pay For the War'). This was one of the standard problems in public finance. The trick is to not let the thing get out of control. That, however, was then, and our problems today are rather different, since I'm sure Paul Krugman is right in suggesting that the direct costs of any possible war in Iraq are not likely to be of such a magnitude as to make inflation either necessary or desireable. Inflation may become desireable, if it is ever really 'desireable', in an attempt to avoid the deflation trap.

Posted by: Edward Hugh on February 14, 2003 02:39 AM

>>Now, the deficit is not so bad since it will only be a problem after 2010. Bah....>he played down those concerns today and asserted that the worst of the budget problems would only arise once the current generation of baby boomers began to retire in 2010....>I don't see how inflation is supposed to seriously alleviate the debt financing problems of future entitlements, being that SS benefits are indexed to wages.>Finally, we have to confront the retirement program imbalances. There is no magic bullet for Social Security. Fixing it will involve some combination of increasing the retirement age, cutting the growth rate of benefits and increasing contributions. Medicare and Medicaid will be an even tougher problem.>If deficits continue to accumulate, the temptation to print money to pay our debts will become almost irresistible.<<

This would be the famous 'helicopter money' solution, but it isn't as easy as it seems, again ask the Japanese.

Posted by: Edward Hugh on February 14, 2003 02:59 AM

OK, I've caught on to the problem, I'm re-posting.

>>Now, the deficit is not so bad since it will only be a problem after 2010. Bah....>he played down those concerns today and asserted that the worst of the budget problems would only arise once the current generation of baby boomers began to retire in 2010....<<

Ditto to what I said above Anne, it's not a question of playing things down, but of alerting to a real and present danger lying just around the corner. It's only by thinking of the future consequences of your present actions that you can decide what is responsible and irresponsible now.

Posted by: Edward Hugh on February 14, 2003 03:01 AM

No I haven't so I'll try again:

>>Now, the deficit is not so bad since it will only be a problem after 2010. Bah....<<

No, I don't think you've quite caught Greenspan's point there Dahl, since I don't read him as saying that the present deficits are good, but that they become disastrous in the light of the enormity of the problem facing us (Brad mentioned national bankruptcy somewhere) just a little upstream (2010 isn't so far off after all). The difficulty with running up a debt now is that in this environment you can't comfortably pay it off later. Look at Japan, and keep your eyes pinned on the EU countries and their stability pact problems.

Posted by: Edward Hugh on February 14, 2003 03:03 AM


>>he played down those concerns today and asserted that the worst of the budget problems would only arise once the current generation of baby boomers began to retire in 2010....>I don't see how inflation is supposed to seriously alleviate the debt financing problems of future entitlements, being that SS benefits are indexed to wages.>Finally, we have to confront the retirement program imbalances. There is no magic bullet for Social Security. Fixing it will involve some combination of increasing the retirement age, cutting the growth rate of benefits and increasing contributions. Medicare and Medicaid will be an even tougher problem.>If deficits continue to accumulate, the temptation to print money to pay our debts will become almost irresistible.<<

This would be the famous 'helicopter money' solution, but it isn't as easy as it seems, again ask the Japanese.

Posted by: Edward Hugh on February 14, 2003 03:04 AM

>>he played down those concerns today and asserted that the worst of the budget problems would only arise once the current generation of baby boomers began to retire in 2010....<<

Ditto to what I said above Anne, it's not a question of playing things down, but of alerting to a real and present danger lying just around the corner. It's only by thinking of the future consequences of your present actions that you can decide what is responsible and irresponsible now.

Posted by: Edward Hugh on February 14, 2003 03:06 AM

>>Finally, we have to confront the retirement program imbalances. There is no magic bullet for Social Security. Fixing it will involve some combination of increasing the retirement age, cutting the growth rate of benefits and increasing contributions. Medicare and Medicaid will be an even tougher problem.<<

Jim Glass says: "I don't see how inflation is supposed to seriously alleviate the debt financing problems of future entitlements, being that SS benefits are indexed to wages."

Sorry Jim but I think Hal is right here, there is no magic bullet, and decisions are going to be hard, but indexed reirement income isn't going to happen. But if you look at the possibilities Hal outlines, and get out your growth equations, it's not too difficult to see that growth, if it's not negative, is going to be hard to achieve, and this in the US, which is the best placed of any in the G23. (Try looking at a 70 year old sending an SMS over a mobile phone if you haven't caught on to the problem yet. It's not that 75 year olds can't work (my father retired at 80, and health permitting I'd like to do the same or better), it's the market value of those extra hours of work, and the productivity consequences, that interests me.

"If deficits continue to accumulate, the temptation to print money to pay our debts will become almost irresistible."

This would be the famous 'helicopter money' solution, but it isn't as easy as it seems, again ask the Japanese.

Posted by: Edward Hugh on February 14, 2003 03:08 AM

Brad - Sorry about all the mess, can you clean it up?

Posted by: Edward Hugh on February 14, 2003 03:10 AM

"Isn't Hal a microeconomist, famous for (the excellent) Information Rules? What's he doing commenting on Macro-stuff?"

The same as anybody else, expressing an opinion.

Posted by: Edward Hugh on February 14, 2003 03:12 AM

Tom,

EH has it right, but there is a special twist. Unlike everybody else, Varian gets paid for having an opinion. He is a regular contributor to ... I think BusinessWeek ... as a popularizer of economics. Sort of what Krugman did before he got a bad political taste in his mouth.

Posted by: K Harris on February 14, 2003 04:09 AM

Actually, what is striking is that Varian offers an oppinion. He is a regular contributor to the
Economic Scene rotating column in the NYTimes -
replacing Delong - where he has done a fabulous
job explaining microtheory for the masses. He
is probably best known among economists for his grad micreconomics text and his intermediate text.If you've read the column, you'd see that
they're not op/ed pieces. That he felt moved
to comment on the Auerbach et al piece is noteworthy in and of itself. It's like the dog not barking in the Holmes story. Only here the dog barks.

Posted by: Malcolm on February 14, 2003 08:21 AM

Bond dividends are far more important to older women than stock dividends. An exemption of say 10,000 in bond or stock dividends from taxes would be far more meaningful to such women and help middle class women rather than just the rich.

Alan Greenspan took a day to get the message from the Administration: Do not interfere with our attempts to cut taxes! What the Chairman has done in supporting the Administration plans is going to seriously weaken our fiscal situation. We are needlessly headed for serious problems with Social Security and Medicare.

My fear has been that many conservatives wish to weaken Social Security and Medicare by fostering a needless structural deficit that will haunt us for years. Newt Gingrich was foolish enough to say just that. Newt should be pleased.

Brad should seriously consider the motives of Glen Hubbard and friends, as they contradict all they supposedly thought to further build the deficit and further enrich the rich at the expense of the middle.

Yes, I am worried.

Posted by: anne on February 14, 2003 08:44 AM

Anne, I'm asking what (and how you get one) is a "bond dividend". Bonds pay interest, not dividends. If you're referring to owning shares in a mutual fund that trades bonds, and then declares dividends from those trades, that is something different altogether.

It's been too many years, and too many tax law changes, since I worked for an investment adviser, for me to be very confident about predicting this, but I think such dividends would in fact be treated as stock dividends. I suspect Jim Glass, should he be reading this, can enlighten me.

Posted by: Patrick R. Sullivan on February 14, 2003 09:12 AM

Patrick -

Thank you.

Only stock dividends are included in the Administration plan. Also, not preferred stock dividends or interest, nor convertible bond interest, nor real estate investment trust interest or dividends, nor bond fund dividends or interest. Only taxable stock or stock fund or stock margin accounts are to be included in the plan.

Note - companies can declare "deemed" dividends and retain the dividends, but stock holders will be able to deduct the deemed dividends from capital gains taxes on sale of shares.

There is more: about how companies declare profits, but I do not quite get it. Good grief, this will be complex.

Posted by: anne on February 14, 2003 09:46 AM

>"Low interest rates are going to reduce the incomes of older women for some time...the retirements of older women appears to me a worrisome problem."

Lucky for me, I am a man, and therefore will enjoy a much higher income thanks to gender specific interest rates.

>"Please do comment, for I believe this is fully related to the subject."

I would comment, but your point is so beyond the realm of reason, I am at a loss for words.

Posted by: Bucky Dent on February 14, 2003 11:37 AM

Anne: bond interest payments are already deductible at the corporate level. The Bush dividend cut is needlessly complex, although I applaud its intentions. From what I read, the plan is running into trouble in congress already and probably won't be enacted. I hope they ditch it and simply go with the administration's new tax-deferred personal retirement vehicles, which are simpler and much needed.

Posted by: JT on February 14, 2003 11:42 AM

JT,
The tax-deferred personal retirement vehicles are reported to be in more danger than the dividend tax-cut plan. This is because, far from being "much needed", they will not be used except by the most wealthy Americans. The vast majority of Americans don't contribute the max to the $3,000 IRA limit, so higher tax-deferred limits are irrelevant to most people. Just a few more points of ROI for all those contributions to the Bush campaign.

For some reason, I like Anne. I don't know what she is trying to say exactly, but for some reason, I'm glad she's speaking out.

Posted by: Dan Jordan on February 14, 2003 11:50 AM

It is an interesting paradox that, on the one hand, Americans are constantly chastized for not saving, and on the other hand, efforts to ease saving are always bashed as being overly beneficial to "the rich".

Posted by: Bucky Dent on February 14, 2003 11:53 AM

Dear Bucky Buck Buck

Since man is repeatedly used for all men and women, Anne chose to use women for all women and men. Sorry, if you in your manliness can not grasp such a radical concept. Of course, insults are obviously your only real strength.

Posted by: dahl on February 14, 2003 11:58 AM

What's wrong with "people", "the public", or better still, "working Americans"?

On sites dominated by the political left, such as this one, gender is usually used specifically as part of a political agenda.

Let "anne", whose address is remarkably similar to yours, "dahl", correct me, and I'll concede my misreading of her point.

Posted by: Bucky Dent on February 14, 2003 12:02 PM

JT

Thank you.

The idea of softening double taxation of stock dividends is useful. The concern I have is that the tax benefits will go to the wealthiest of stock holders, and no provision is made for bond holders. Also, there may well be a significant negative impact on municipal bonds. Also, the cost of the tax benefit is worrisome. There would seem to be very little stimulus effect from the benefit.

....

January 16, 2003

Bush's Plan to Eliminate Taxes on Stock Dividends
By HAL R. VARIAN - NYTimes

PAUL H. O'NEILL, the former Treasury secretary, was known for saying "the right thing at the wrong time." The phrase is a fitting description of President Bush's recent proposal to eliminate taxes on stock dividends.

Such a measure is certainly worth considering as part of a fiscally responsible, balanced-budget package of tax reform. But as short-run macroeconomic stimulus, it is next to worthless, and in terms of its long-run impact on the deficit, it is downright irresponsible....

Posted by: anne on February 14, 2003 12:07 PM

http://www.nytimes.com/2003/01/16/business/16SCEN.html?pagewanted=print&position=top

Here is the address for the Hal Varian column on the dividend tax cut plan....

Posted by: anne on February 14, 2003 12:20 PM

Here is an interesting related point in the NYTimes about the taxes paid by corporations -

http://www.nytimes.com/2003/02/14/business/14ENRO.html

The use of tax shelters has become so widespread among the 10,000 largest corporations that their effective tax rate was just 20 percent in 1999, according to the I.R.S. That was far below the statutory rate of 35 percent and well below the tax rate of the next 31,000 companies, which experts say are too small to attract much interest from tax shelter promoters. Several studies by economists have suggested that tax shelters allow companies to deprive the government of about $50 billion annually in tax revenues....

Posted by: dahl on February 14, 2003 12:32 PM

Bucky,
Not all efforts to ease savings are the same. An effort to ease savings that is overly beneficial to the rich is inadequate to say the least. An effort to ease savings by, for example, eliminating the payroll tax thereby freeing up more money for people to save is something worthwhile. The bias of the Bush tax policies make it clear, he is not interested in increased savings he is after more tax dodges for the wealthy.

On a side note, I would like to visit a website similar to this one as far as intellect, but predominantly conservative. Can you recommend one? I tried the Free Republic website and was banned after offering an opposing viewpoint. They don't even see the irony of having a website called "Free Republic" that offers no freedom of thought.

Posted by: Dan Jordan on February 14, 2003 01:06 PM

I've not found a righty political economics site paralleling this one, and I too have looked.Free Republic is a wild place that is useful for its bulletin board function, with distributed article gathering, but not much more.

Elimination of the payroll tax, which I am all in favor of, could create a moral hazard problem, whereby essentially 100% of the taxes would be then paid by less than 1/2 the public, making the temptation for plunder all too easy.

Posted by: Bucky Dent on February 14, 2003 01:22 PM

Arnold Kling has a new blog that could turn out to be good if he posts more often and more of the Jim Glass type bloggers of the right wing ilk post as well.

Jane Galt has a site that is also of the libertarian streak but it strays too much into the hot-button gun control, abortion issues (where the real nutcases come out to play) for it to be considered a right wing parallel to this one.

Posted by: achilles on February 14, 2003 01:30 PM

Abortion and evolution really bring the "full mooners" out, yes.

Posted by: Bucky Dent on February 14, 2003 01:32 PM

"Elimination of the payroll tax, which I am all in favor of, could create a moral hazard problem, whereby essentially 100% of the taxes would be then paid by less than 1/2 the public, making the temptation for plunder all too easy."

No. That 1/2 the public pays nearly all taxes because they have nearly all the income.

Posted by: Jason McCullough on February 14, 2003 01:38 PM

Jason, why do you preface your statement with "no"?

Posted by: Bucky Dent on February 14, 2003 01:41 PM

My thanks to everyone for their right-wing site insights.

Bucky said
"making the temptation for plunder all too easy".

Clearly the Bush crowd has not been able to resist the temptation to plunder. I think the wealth minority has historically shown an ability to hold its own. Financing an army of conservative commentators, financing a conservative news channel, and defending a campaign system dependent on money should give the used and abused wealth minority a little political strength. I will hold back my tears for them for now.

Posted by: Dan Jordan on February 14, 2003 01:43 PM

As the government remains the only legitimate monopolizer of compulsion/force, and we have on balance a "majority rules" political system at the ballot box, my point stands.

Posted by: Bucky Dent on February 14, 2003 01:47 PM

>> Arnold Kling has a new blog that could turn out to be good if he posts more often and more of the Jim Glass type bloggers of the right wing ilk post as well. <<

We ilk are appreciated! I feel like I've found my valentine. ;-)

(AK's new site is good, more people should visit.)

Posted by: Jim Glass on February 14, 2003 02:58 PM

Well Jim, don't get too carried away. 'Good right wing blogger' is only a relative compliment - kind of like 'athletic Englishman' or 'fiscally responsible Republican' - not an absolute one.

Posted by: achilles on February 14, 2003 05:21 PM

"Jason, why do you preface your statement with "no"?"

Excuse me, I should have been clearer: what you said sounds like a variant of the old "half the people pay nearly all the taxes!" line. This leaves out the the half paying nearly all the taxes have nearly all the income; unless the system is actively regressive, this is what you'd expect.

Posted by: Jason McCullough on February 14, 2003 06:12 PM

Dan Jordan asks "I would like to visit a website similar to this one as far as intellect, but predominantly conservative. Can you recommend one? I tried the Free Republic website and was banned after offering an opposing viewpoint. They don't even see the irony of having a website called "Free Republic" that offers no freedom of thought."

Ah, there's the rub.

The real libertarians are almost exlusively on the left. Ron Paul is a rare one on the right.

The Free Republic is a classic Republican site. Ostensibly, it promotes freedom. In reality, it censors even minor deviations from the GOP line. Ironically, they scream about "political correctness" on the left. As anyone who knows "the left" is well aware, no one actually censors anyone. They just try to shame whoever, and if that fails, well, tough nuts.

As for right wing sites with even half the brainpower assembled on these modest pages... forget it. If they had the brain power, they wouldn't be right wing.

Posted by: Charles Utwater II on February 14, 2003 10:17 PM

>>The real libertarians are almost exlusively on the left.

Examples?

Posted by: Bucky Dent on February 15, 2003 06:33 AM

>>the half paying nearly all the taxes have nearly all the income

Observationally, it seems unlikely we have close to 140 million people here with scant income. Home prices, car sales, and plain old "look around" evidence argues the contrary.

Your point, that incomes are not evenly/smoothly distributed, is valid. But you overstate the skew.

Posted by: Bucky Dent on February 15, 2003 06:53 AM

>>the half paying nearly all the taxes have nearly all the income

Observationally, it seems unlikely we have close to 140 million people here with scant income. Home prices, car sales, and plain old "look around" evidence argues the contrary.

Your point, that incomes are not evenly/smoothly distributed, is valid. But you overstate the skew.

Posted by: Bucky Dent on February 15, 2003 06:56 AM

The commonly made assertion that those who don't share my political perspective are simply idiots is an unfortunate phenomena that exists in both major political parties, and probably all the minor ones as well. It is an assertion that is also, ironically, quite stupid. It is a form of stupidity that most of us have fallen prey to at least once, if only silently. Hopefully , as one gains maturity, which unfortunately is a process that some never experience, one begins to understand that most political disagreements stem from fundamentally different assumptions, usually regarding human nature. Since fundamental assumptions are unavoidable in political theory, and are, in the final analysis, not subject to empirical proof (hence the term "assumption") it is senseless to attribute stupidity to everyone that has a differing political perspective. This isn't to say that idiocy is not rampant nearly everywhere on the political spectrum; it is a constant source of wonder that people are so very often incapable of learning from plainly observable phenomena. To assume, however, that all who disagree with me are imbeciles is itself the height of imbecility, and forecloses dialogues that can foster wisdom.

Posted by: Will Allen on February 15, 2003 08:29 AM

anne said "Low interest rates are going to reduce the incomes of older women for some time...the retirements of older women appears to me a worrisome problem."

Bucky said: "Lucky for me, I am a man, and therefore will enjoy a much higher income thanks to gender specific interest rates."

It's not about "gender specific interest rates," but gender-related demographic and historical facts.

Demographic - women live longer than men, and worked outside the home (if at all) at much lower-paying jobs, for less time.

Historic - many women have their retirement savings in the most safe and riskless possible investments (not the stock market) and have watched as their miniscule CD interest incomes have been reduced to almost nothing.

Many women whose husbands retired during Carter's high interest rate days put all their eggs in the CD (interest income) basket, and for various reasons (fear of risk, lack of financial knowledge, or lack of someone to trust on financial matters) just roll them over and over, now that their husbands have died. (My mom is an example.)

Though I don't have the figures, and can only speculate as to why, I willing to bet the number of women who depend for their retirement on interest income is much higher than number of men who do.

tjallen

Posted by: tjallen on February 15, 2003 12:05 PM

>women live longer than men...many women have their retirement savings in the most safe and riskless possible investments...

Uh, so I am supposed to feel sorry for a group of people who will both outlive me and enjoy risk-free income streams?

I refer you to the "rule of holes".

Posted by: Bucky Dent on February 15, 2003 12:23 PM

tjallen

You are correct. Women tend to be more vulnerable financially as they age and need to fairly conservative in investing. I suspect they may have to be more heavily dependent on interest income than men.

However, trying to explain how not to despise women to "Bucky Buck Buck" is obviously fruitless.

Posted by: Randall on February 15, 2003 02:14 PM

> trying to explain how not to despise women to "Bucky Buck Buck" is obviously fruitless

Now, that's not nice, or even sporting.

I *love* women every chance I get. Ask my wife! :)

The chance to ridicule the absurdity of introducing a gender bias notion into a discussion of interest rates was simply too tempting for me to pass by.

Those worried about dwindling interest income for their grannies (no word on gramps, mind you) should be THRILLED with Bush's budget and all the attendant leftist demonology.

More debt means higher rates, right? Since our credit market sets rates for fixed income issues, and you can be sure greedy capitalists like me won't accept negative real rates, grandma can look forward to a nice positive real return on her cash going forward.

Posted by: Bucky Dent on February 15, 2003 02:23 PM

The "rule of holes"?

Are we still talking fiscal policy? Is this something the Bush admiration is digging?

Or did Anne (who's restraint is admirable) just get insulted again?

Posted by: John Thullen on February 15, 2003 02:30 PM

If you go to http://www.google.com and type in "rule of holes", and hit enter, many websites with definitions show up.

This one is succinct:

http://www.monroecc.edu/wusers/Flanzafame/HoleRule.htm

The Rule of Holes -- When you find yourself in a hole, Stop Digging!

Posted by: Bucky Dent on February 15, 2003 02:40 PM

Thanks all. This is a wonderful website and actually fun if I can remember to take it so....

Still, we should be running a deficit at present. The problem I have is viewing an Administration budget that will insure deficits year after year.

We are an aging society and unless we really are planning to cut back on Social Security and Medicare benefits building an increasing structural deficit strikes me as quite wrong. Though I am optimistic about productivity growth and believe the economy can grow faster than in the 1980's, I do not think we can grow our way out of deficits produced by the sort of long term tax cuts proposed by the Administration. Supply siders make sense only in an imagined economy.

So, I am worried about how we intend to provide for older MEN and women [oh dear] if we adopt a stance that says we can again cut taxes for those who can most easily pay them, pay for our significant current needs, and happily add deficit to deficit.

Should we welcome interest rates driven significantly higher by deficits? I think not.

Bucky Dent -

That was my point.

Posted by: anne on February 15, 2003 03:31 PM

>I am worried about how we intend to provide for older MEN and women...

Well, at least we've struck a blow for gender-neutral deficit threads.

Posted by: Bucky Dent on February 15, 2003 04:01 PM

Observationally, it seems unlikely we have close to 140 million people here with scant income. Home prices, car sales, and plain old "look around" evidence argues the contrary.
Your point, that incomes are not evenly/smoothly distributed, is valid. But you overstate the skew.

I'm not overstating it. The article states that the bottom half of earners pay 4% of income taxes. The average income number given for the bottom half is $26,415, and there's 63 million of them (not everyone works, remember); this nets out to 1.6 trillion, or about 17% of all income.

So, using the given numbers in the article and some math: the top half of earners earn 83% of the income and pay 96% of the federal income taxes, while the bottom half of earners earn 17% of the income and pay 4% of the federal income taxes.

However, that doesn't include sales taxes or state income taxes, both of which are more regressive than federal income taxes; sales taxes especially so. I can't find exact numbers, but here's an interesting chart showing that something like 82-99% of income earners below $30,000 pay more in social security taxes than they do federal income taxes; seeing how social security taxes are pocket change for upper income earners compared to federal income taxes, that probably significantly closes the gap.

In summary: taxes are skewed, but incomes are skewed about as much. Furthermore, though I can't find the blasted thing, I remember seeing a study (Brookings, maybe?) claiming that upper income earners actually get a "better return" on the their tax dollar in services than lower income earners.

Posted by: Jason McCullough on February 15, 2003 04:20 PM

Observationally, it seems unlikely we have close to 140 million people here with scant income. Home prices, car sales, and plain old "look around" evidence argues the contrary.
Your point, that incomes are not evenly/smoothly distributed, is valid. But you overstate the skew.

I'm not overstating it. The article states that the bottom half of earners pay 4% of income taxes. The average income number given for the bottom half is $26,415, and there's 63 million of them (not everyone works, remember); this nets out to 1.6 trillion, or about 17% of all income.

So, using the given numbers in the article and some math: the top half of earners earn 83% of the income and pay 96% of the federal income taxes, while the bottom half of earners earn 17% of the income and pay 4% of the federal income taxes.

However, that doesn't include sales taxes or state income taxes, both of which are more regressive than federal income taxes; sales taxes especially so. I can't find exact numbers, but here's an interesting chart showing that something like 82-99% of income earners below $30,000 pay more in social security taxes than they do federal income taxes; seeing how social security taxes are pocket change for upper income earners compared to federal income taxes, that probably significantly closes the gap.

In summary: taxes are skewed, but incomes are skewed about as much. Furthermore, though I can't find the blasted thing, I remember seeing a study (Brookings, maybe?) claiming that upper income earners actually get a "better return" on the their tax dollar in services than lower income earners.

Posted by: Jason McCullough on February 15, 2003 04:21 PM

>upper income earners actually get a "better return" on the their tax dollar in services than lower income earners.

Fails the giggle test. Upper earners are far far less likely to use public tranportation, public schools, public health care facilities, public security [gated communities, doorman buildings], etc.

Posted by: Bucky Dent on February 15, 2003 04:35 PM

Did I really write "Bush admiration" or is my Freudian slip showing? And "who's" rather than "whose"? Sorry!

The last time I typed in "rule of holes" on the Web, my wife ran out and purchased screening software.

Now, seriously, Anne has observed that current fiscal policies point to necessary near-term deficits but catastrophic long-term deficits for women (and, of course, many men) who, because they live longer, depend more on the solvency of moral, good programs like Medicare and Social Security, because women, in many cases, but not to the same extent as in the past, earn less, and probably (for those in lower tax brackets) end up on the wrong side of the divorce ledger with kids to support.

Now Bucky, who inquires about why he should feel sorry for the above, worries about "how we should provide for older MEN and women" in a gender neutral sort of way, and seems to betray a certain kind of altruism, but of what kind? The Ayn Rand kind, which is no altruism, or is there some sort of compromise available on this thread that can include the words "collective" or "social" and still include Bucky.... and Anne?

Posted by: John Thullen on February 15, 2003 04:58 PM

> end up on the wrong side of the divorce ledger

The poor women I know who are solely responsible for chidren never got married. OTOH the poor men I know, got married, got kids, got divorced, got strip-mined.

I'll admit my sample is small and anecdotal.

>moral, good programs like Medicare and Social Security

If you're using the word "moral" in this context, there is no rhetorical room for disagreement, so I won't waste Dr. DeLong's bandwidth.


Posted by: Bucky Dent on February 15, 2003 05:24 PM

O.K. take out the word "moral".

Now, go for it. Bandwidth is unlimited.

Posted by: J on February 15, 2003 05:34 PM

"J" is me. Must be a bandwidth squeeze.

Posted by: John Thullen on February 15, 2003 05:36 PM

You are very free with other people's property, be it money or bandwidth.

You can judge for yourself whether I think that's a "moral" position to take.

Posted by: Bucky Dent on February 15, 2003 05:40 PM

I've judged.

Brad, send me the bill on the bandwidth Bucky used for his last non-committal post.

Posted by: John Thullen on February 15, 2003 05:48 PM

Mr. Dent is unaware of any civil libertarians on the left and requires example.

A few organizations dedicated to protecting civil liberties that come to mind: the ACLU, the Center for Constitutional Rights, the Lawyers Guild... the list is long.

Mr. Allen correctly notes that the assertion that those who don't share one's political perspectives are idiots is common. Indeed, if the world were composed half of idiots and half of non-idiots, all would assert that the other is idiotic. And half would be right.

What Mr. Allen should take into account in judging which half is which is examining who backs up their assertions with verifiable facts from neutral sources. When I say that the modern American right is intellectually bankrupt, it is from noting that they seem to be unable to win arguments through the use of fact. Ad hominem, throwing up strawmen, changing the subject and outright fabrication are common tactics. I go with whoever uses facts and fair argument. The modern American right has all the wrong stuff.

Posted by: Charles Utwater II on February 15, 2003 05:54 PM

Memo to Charles the 2nd: There is a difference between "real libertarians...Ron Paul is a rare one on the right" and "civil libertarians".

The former, in the Ron Paul sense, believe in minimal government and maximum freedom - political *and* economic.

Civil libertarians, in the sense you cite, are ususally defined as "dedicated to protecting civil liberties" typically regarding specific areas of politcal speech and legal rights, with relatively little focus on private property rights.

They are quite different terms referring to quite different people and policy matricies.

Posted by: Bucky Dent on February 15, 2003 06:06 PM

Memo to Thullen: If you think that was "non-committal", you ought to attend a class in rhetoric, or just plain English.

We disagree on First Principles. The discussion would be rote and pointless.

Posted by: Bucky Dent on February 15, 2003 06:09 PM

Bucky:

I'm a rhetoric mimic. You and yours are the model.

As to English, Anne began this thread in English and you introduced a different language. I'm just the ad hominum you've been looking for. Anne's not.

Now, address Anne's real point before bandwidth is way too overbuilt.

Posted by: John Thullen on February 15, 2003 07:04 PM

Charles II proves my point nicely. The assertion that ad hominem assaults, erection of strawmen, and arguments devoid of facts are the sole province of one end of the political spectrum, or that the other end is the only one engaged in the good-faith pursuit of truth, can only be made by those who are completely lacking perspective, and so blinded by ideology, that their powers of observation have been reduced to zero.

For instance, examine Charles II's observation that libertarian thinking is nearly the sole province of the "left" (whatever that nebulous term means), in light of how strongly the War on Drugs (probably the most serious, every day assault of civil and economic liberties in this society) is supported from various parts of the political spectrum. The "right" is far less monolithic in strongly supporting the War on Drugs, and has even elected a Governor who did all that he could to reign it in. This isn't to say that there are not occasions that the "left" has been more consistent in defending individual liberty. However, the "left's" near-total refusal to recognize property rights as being as fundamental to individual liberty as other rights, along with their love affair with regulation, of even the most mundane economic activities, or the most powerless of citizens, renders them extraordinarily inconsistent and ineffectual defenders of human liberty. That someone is completely oblivious to these realities when asserting that libertarian thinking is nearly the sole province of the "left" is indicative of a mind that has left reason in the rush to embrace ideology.

Posted by: Will Allen on February 15, 2003 10:50 PM

Well, O.K, Will Allen, you're right.

Although I would argue that William Bennett's pronouncement from the Right several years ago demanding the beheading (Saudi Arabian style) of drug pushers seemed to monolithically trump any qualms the Republican Governor of New Mexico (or was it Arizona?) or Democratic politicians have about the War on Drugs.

And I'll be happy to climb down off my ideological hobby horse and compromise in the small d)democratic tradition when I sense the other side is willing to do the same. Maybe.

And then maybe Anne's concerns can be addressed in an unpatronizing and non-condescending manner, and we all can embrace somewhere in the middle (but a little to the left).

Posted by: John Thullen on February 15, 2003 11:52 PM

Actually, I consider the terms "right", "left", "liberal", and "conservative" to be of limited utility, since thet tend to obscure as much as they illuminate, and because I wish to avoid feeling any sense of obligation to support or defend what I would otherwise oppose, if not for a sense of loyalty or obligation. It is preferable to only have loyalty to the truth, as best one can discern it. I am thus extremely suspicious of any attribution of moral superiority, or inferiority, of any political faction, since it is my experience that human beings are fairly consistent in their ability to engage in self-deception and rationalization when in pursuit of power over other people.

Posted by: Will Allen on February 16, 2003 01:20 AM

>you introduced a different language

What language was that?

Posted by: Bucky Dent on February 16, 2003 04:52 AM

"Fails the giggle test."

Quite the statistical method you have there. And I assume you're conceding the point on distribution of income?

Posted by: Jason McCullough on February 16, 2003 07:38 AM

Importantly, President Bush affirmed the "moral" tenor of a program such as Medicare in the State of the Union by committing America to fight against the AIDS epidemic in Africa. The President affirmed we surely have a moral need to support the hope of life for young women and men who suffer from AIDS in Namibia. I absolutely agree. So too we have a need to support those who have long worked to support others through Medicare and, yes, Social Security. That is not to say the programs can not be amended, but that they are as necessary as our committment to Namibia.

AIDS in southern Africa, by the way, has an incidence of about 60% women. A gender focus is essential.

Posted by: anne on February 16, 2003 08:44 AM

Is there a way we can only save the men of Namibia? (j/k).

The core of the civil liberties issue is this: Conservatives place more emphasis on property rights and liberals place more emphasis on human rights. When the two clash (property vs. human) the lines are drawn. The War on Drugs prove hypocrisy on both sides, but right now I am particularly appalled at a "states rights" president attacking California's law on drugs. I hardly think conservatives have superior morality on this issue.

Posted by: Dan Jordan on February 16, 2003 09:06 AM

http://allafrica.com/stories/200302100157.html

February 10, 2003

To Save Africa, We Must Save Africa's Women
By Kofi A. Annan - Chronicle

Lilongwe -- A combination of famine and AIDS is threatening the backbone of Africa - the women who keep African societies going and whose work makes up the economic foundation of rural communities.

For decades, we have known that the best way for Africa to thrive is to ensure that its women have the freedom, power and knowledge to make decisions affecting their own lives and those of their families and communities. At the United Nations, we have always understood that our work for development depends on building a successful partnership with the African farmer and her husband.

Study after study has shown that there is no effective development strategy in which women do not play a central role. When women are fully involved, the benefits can be seen immediately: families are healthier; they are better fed; their income, savings and reinvestment go up. And what is true of families is true of communities and, eventually, of whole countries.

But today, millions of African women are threatened by two simultaneous catastrophes: famine and AIDS. More than 30 million people are now at risk of starvation in southern Africa and the Horn of Africa. All of these predominantly agricultural societies are also battling serious AIDS epidemics. This is no coincidence: AIDS and famine are directly linked.

Because of AIDS, farming skills are being lost, agricultural development efforts are declining, rural livelihoods are disintegrating, productive capacity to work the land is dropping and household earnings are shrinking - all while the cost of caring for the ill is rising exponentially. At the same time, HIV infection and AIDS are spreading dramatically and disproportionately among women. A United Nations report released last month shows that women now make up 50 percent of those infected with HIV worldwide - and in Africa that figure is now 58 percent. Today, AIDS has a woman's face....

Surely, "Today AIDS has a woman's face."

Posted by: anne on February 16, 2003 09:33 AM

>Quite the statistical method you have there.

I find it very effective for first order data analysis.

>And I assume you're conceding the point on distribution of income?

I concede I have no time/energy to dispute specific data series, so I will not contest this point now.

Posted by: Bucky Dent on February 16, 2003 09:56 AM

>Today AIDS has a woman's face."

So we've gone from budgetary macroeconomic analysis of government fiscal policy and its influence on the cost of capital, to a(nother) African charity campaign.

Posted by: Bucky Dent on February 16, 2003 10:04 AM

President Bush thought the topic germane to the budget. Of course, any mention of women, whoo, however related, sends the Buckola into a frenzy. Women, whoo....

Posted by: randall on February 16, 2003 10:28 AM

Randall, you are validating the prejudice of everyone who loathes lawyers in general, and Harvard grads in particular, by defaulting to an ad hominem baseless inferential smear.

Posted by: Bucky Dent on February 16, 2003 10:51 AM

Bucky, the giggle test must not take into account the benefits of military protection or obligations of military service. Combined with the relative benefits received by police protection and the courts, it would be very easy to show that wealthy citizens receive more per Dollar in government services than poorer citizens.

Posted by: Stan on February 20, 2003 07:52 AM

Inflation will not provide an escape route from the Bush regime's irresponsibility. With financial markets far more open than those of the 1970s, exploding current account deficits and foreign debt I would expect long-term interest rates to rapidly adjust to expectations. As for entitlements reaching 21% of gdp, the problem lies entirely within medical programs, whose expenses closely track private-sector costs. On current trends, healthcare will constitute 112% of gdp by 2039. Welcome to 1980s Latin America.

Posted by: casey neideffer on February 20, 2003 09:41 AM
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