Middle class wages "stagnating?" The middle class "shrinking?" Think again!
I posted earlier on Alan Reynolds's research on income inequality and what is *really* going on with "the top 1%" in this country (http://www.swordscrossed.org/node/863 ). Now here's some more, courtesy of an economics professor who has read Reynolds's new book and done some analysis of his own. Here are some choice quotes from his series of articles:
http://www.tcsdaily.com/article.aspx?id=121306A
How often have you heard that the vast majority of families' incomes in the United States are rising little or not at all, that the middle class is shrinking, that real wages are stagnating, that the top 20%, or 5%, or 1% are getting the lion's share of the gains in the U.S. economy, that average CEO pay is getting to be a couple of orders of magnitude larger than average people's pay, or that mobility across income groups has declined? [...] Well, guess what? All of the above claims are either absolutely false or at least highly misleading.
http://www.tcsdaily.com/article.aspx?id=122006A
The final and most-important factor is the growth in consumption at all income levels. Reynolds writes:
Unless the top 10-20 percent could somehow consume unlimited numbers of houses, cars, shirts, and steaks, it is difficult to imagine how each American's [he should have said "the average American's] real consumption could have doubled if real wages and salaries had really been unchanged. The average size of new homes rose from 1,500 square feet in 1970 to 2,349 square feet in 2004, and the national home ownership rate rose from 62.9 percent in 1970 to 69.2 percent by the end of 2004. How could so many people be living in so much larger houses if only 10-20 percent had significant increases in income?
The above quote is not in itself a slam-dunk argument. Even though the average size of new homes increased a great deal, the average size of all homes would presumably have increased less. But Reynolds makes it a slam-dunk by citing data from the aforementioned Cox and Alm and from Kirk Johnson showing that the average poor family in 2001 did as well as or better than the average family in 1971 in ownership of motor vehicles, air conditioners, color TVs, refrigerators, VCRs, personal computers, and cell phones. Of course, the last three didn't exist in 1971, but that's part of the point. When poor families can afford what even middle-income families couldn't imagine having 30 years earlier, aren't things working out pretty well?
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Comments :
So what you are actually
saying is that it does not matter if the gap between rich and poor is increasing because relatively we are all gaining as far as 'quality of life' since 1971?
As much as I would like to cheer for this idea, since many of these gains are based on advances in technology and credit, I'm not satisfied.
Basically, you are saying don't look at how the other guys are growing exponentially because, hey, at least you guys are advancing a little. That's like saying to two people who have broken legs, "don't mind the guy with the pain relievers, cast, and wheelchair, because at least you have a band-aid which did not exist 100 years ago."
Misreading of the argument
I am not at all saying that. There are two ways we can look at inequality: absolute and relative.
On an absolute basis, it is abundantly clear that we are better off economically than we were before -- whether "before" is defined as 1, 5, 10, 20, 30, or 50 years ago, and whether "we" is defined as the poor, the middle class, or the rich.
On a relative basis, the evidence is mixed. Empirically speaking, there *is* a case that income inequality has increased in the US compared to 30 years ago, but it is *not* an open-and-shut case. There is a significant amount of counterevidence suggesting that it is all a statistical artifact and there has not really been any true change in inequality, or that any change has been extremely small at most.
For the sake of argument, let's just suppose that, on a relative basis, income inequality has increased. Then there are several additional questions we might ask as economists.
1. Why has it increased? What are the causes of the change?
2. If it was our goal to decrease inequality, what government policies might we use? What would be the effects of those policies?
The answers to both of these questions are also complicated.
For example, we cannot neglect the fact that, after World War 2, the economies of many developed nations, especially the Axis powers, were completely devastated. It took at least two full decades for some of those countries to recover economically from World War 2. The US was one of the few major developed countries to escape virtually unscathed on its home soil. This gave us a huge, essentially insurmountable economic edge over the rest of the world for quite a few years. It was not until the 70s that international economic competition really heated up again, which would have the natural effect of driving down wages for unskilled labor.
It is not at all clear what economic policies the government could institute that would reduce income inequality in any significant way. Many such policies would simply hurt the rich without helping the poor.
Now, I also happen to not care one lick about relative income or wealth inequality. I do not believe it is the responsibility of the rich to help the poor. I do not believe that it is the responsibility of the government to help the poor. I believe that it is unjust to forcibly confiscate one person's income and give it to another person, and that this does not become any more just simply because 51% of the population voted for it.
I don't believe it is meaningful to talk about a "just" or "unjust" distribution of income or wealth. The economy is a process; a distribution of income or wealth is an outcome. An outcome cannot be unjust in and of itself -- an outcome is unjust only if it results from an unjust process, or if a just process is not executed faithfully.
If I bet you $50 on the outcome of the Super Bowl, and I lose, I must accept that outcome as just -- it resulted from a just process, where we both agreed in advance what the rules were. This is true even if losing $50 pushes me over the financial edge to bankruptcy.
A capitalist economy is a just process. Therefore, whatever distribution of income or wealth results from it is, by definition, also just.
ON liquidity
(In my life I have never known anyone who looks at Every Single thing through numbers, money and economic equations.
I salute your knowledge and passion for your clearly thought out position.
It astonishes and baffles me, as one who thinks in wholly different terms.
When you say "value" to me, money is NEVER the first thing that comes to my mind.)
But here is something I found interesting, and I wonder what your thoughts are on this article. There are times when liquidity and the lack of it create conditions that lead to war.
1914
It is the economy, stupid.
How is it just?
A capitalist economy is a just process.
The flaw in the reasoning is shown by applying it to Democracy. A 'just' process one would hope, yet a common conservative complaint is that high taxes passed by the masses are unjust.
Further, the capitalistic economy we have is not executed faithfully, lobbyists, inside traiders, people who violate regulations and very often get away with it. Even if executed faithfully, how is it 'just' that some people start in a superior position to others? While you can argue that other systems are worse, capitalism is not inherently just.
Also, let's be honest, the peasant class during the French Revolution were almost certainly significantly better off in an absolute sense than the wealthiest of the ancient Babylonians, but that arguement didn't do the aristocracy much good, so apparently 'relative' inequality has an impact.
Democracy is an unjust process
Pure democracy is nothing other than the tyranny of the majority. Madison and Hamilton were terrified of democracy and explicitly went out of their way to avoid making America a democracy; see Federalist #10.
A statement is not true merely because 51% of people agree with it. A law is not just merely because 51% of people voted for it.
Indeed, skepticism of democracy is a classic "conservative" position. It's intellectually incoherent for a conservative to describe the ideal form of government as "democracy."
We definitely don't have a pure capitalist economy. We have a mixture of capitalism and socialism. If you want to see capitalism in a somewhat purer form, look at Hong Kong.
I don't see any problem with insider trading. Insider trading is beneficial -- it brings the prices of stocks closer to their true value. Prohibiting insider trading makes the stock market less efficient. Insider trading should not be a crime.
I don't know what you mean by "people who violate regulations", but I don't favor many of those regulations in the first place. If an employer violates OSHA regulations or hires people for less than the minimum wage, or someone sells a drug without FDA approval, I honestly don't care.
Lobbyists? Sure, there is a problem there. But the solution is not to outlaw or restrict lobbying -- lobbying is nothing other than political free speech. The solution is to remove the *incentives* for lobbying. The only sure-fire way we can reduce the incentive to lobby is by shrinking the size and scope of government. If the government was half as big, we would have a lot fewer lobbyists.
The fact that some people start in a "superior" (I would say "different", but whatever) position to others is in part simply an immutable fact of nature (in the absence of rather advanced genetic engineering technology and a eugenics program). Like it or not, people have different natural endowments. This is not just or unjust -- it merely is. You might as well be railing against the law of gravity as "unjust" for not allowing man to fly like a bird.
The rest of it -- the part not explained by genetics -- is, again, an outcome, not a process. A capitalist economy (or in fact just about any economy) will inevitably result in different people having different amounts of wealth. Therefore, some people will be born into rich families, and others into poor families.
Don't like that outcome? Too bad -- if the process that resulted in that outcome was a just process, you are obligated to accept the results, no less than I am obligated to pay up my $50 if I lose my Super Bowl bet.
Capitalism is a system where people are free to voluntarily engage in economic transactions with one another, so long as no third parties are harmed in the process. (In economic terms, as long as there are no externalities.)
I consider a society founded on those premises -- anyone should be free to do anything they want as long as no one else is harmed -- to be a just society.
I consider restrictions on economic freedom -- the right to voluntarily engage in economic transactions with other people -- to be unjust.
Then it should follow logically that you abhor
... California's proposition system that permits 50% +1 to make law.
If you really believe this is the "fight of our lives," how come you're not in Iraq?
But of course!
...and, for that matter, I also oppose the direct election of Senators.
Well that's timely
It is the economy, stupid.
Delicate balance
There is a big problem when a whole lot of people don't see the process as just, and I think that is where we find ourselves today.
How would you apply your economic theories to Iraq. I hear the unemployment rate there is high. The citizens there complain of cronyism and fat cats in the Iraqi government sitting on their chairs in the green zone doing nothing to help regular folks get jobs. Isn't this very outcry an opportunity to help establish social order.
Just curious, with your seeming disdain for government, do you feel a sense of national pride. Or do you find the bustling economic development in Hong Kong gives you much more inspiration.
It is the economy, stupid.
National pride
The US still regularly ranks as one of the most economically free nations on the planet, and that is something to be proud of, although lately we've been slipping a bit.
Unfortunately, it is not nearly as free as it was in, say, the 1920s. Government has grown, and our freedoms have shrunk.
I certainly do have pride in our culture, our economy, our technology, our businesses, our innovators, and so on. But it's hard to have pride in a government that often does more to retard progress than to advance it.
Ah the good ol' 1920s
Nothing bad happened economically during the 20s. We should so go back to those days.
Back in the day when large companies would engage in price fixing to drive smaller businesses into bankruptcy... yes, things were SOOOO much more free back then. Why stop with economic anarchy? Let's get rid of all laws, then everyone will truly be free.
I assume you are a Mellon fan.
For the truly brilliant minds there are always ways of getting around the government.
Just do your banking offshore.
I agree about the shrinking freedom. I resent having every single transaction I made being monitored for my "credit report", and then sold to third parties for data mining marketeers. I consider it an invasion of my privacy. Just for starters.
The list goes on and on.
If you are looking for a good investment, try weapons manufacturing. I hear business is booming these days.
It is the economy, stupid.
US citizens must pay US taxes on worldwide income
A common misconception. US citizens are required to pay US taxes on *all* their worldwide income. The IRS is actually very good at uncovering these sorts of offshore tax havens. Eventually you have to move your money back out of them, and at that point, they *will* find out.
Then why do so many corps
have a PO Box on the Camen Islands?
there must be some advantage.
It is the economy, stupid.
Corporate taxation is different
A corporation legally based in the Cayman Islands must still pay US taxes on income earned inside the US. It has to pay European tax on income earned in Europe. But it does not have to pay Cayman Islands tax on any of it, because there is no Cayman Islands tax.
This is not a silver bullet. You still have to do your actual business *somewhere*. Your corporation will still end up being taxed according to *some* jurisdiction's corporate tax code. For example, if you do business in the US, your business will still end up paying US corporate income taxes. The only benefit to being based in the Cayman Islands is for corporations that do business all around the world. But even then, they will still pay corporate income taxes.
There really is no magic way to get out of paying all your taxes... many people have tried and failed, and the IRS is constantly putting out new regulations to cover all the bizarre schemes that people come up with to get out of their taxes.
That is actually not true
If you are an American citizen you have to pay taxes on money you make here, but if you are paid by a company in Saudi Arabia and pay Saudi Taxes (none) there are no US taxes. That was a big draw when the Saudis first started the massive spending program in the '50s-'60s.
There have been attempts to close those loopholes, as folk have had foreign subsidiaries pay for work actually worked on in the US, but there is always oceans of crocodile tears about double taxation, and I believe they still run ocean liners through them.
If you are a citizen of another country you can choose to pay their taxes instead of American taxes, even on American income. I worked with a guy who, originally British, had gotten Cayman citizenship and managed not to pay taxes.
In the end those who pay the most for politicians, get the best loopholes, and those with the most money can afford the best.
The Self Made Man is just not admitting where he got all the parts.
Fat CEO pay seen a wider society concern
You know you are in trouble when that liberal media turns populist and questions the fairness of such out of scale pay.
From Reuters
I guess some people consider the out of scale severance package to be harmful to their sensibilities.
We can consider this an issue that should be addressed by the shareholders...... if they in fact have an opportunity to express themselves on the matter.
All this for SIX years worth of work!!!!
People no matter how many ways you explain this will not see this as fair. If the people were left in the dark, or if the CEO pay was seen as reasonable then this populist outcry would not be occuring.
A Business Philosopher (I didn't know there was such a thing) says:
Yes I agree. The sense of entitlement is from the CEO's.
It is the economy, stupid.
CEO pay is none of your or my business
...except insofar as you or I am a shareholder in the company in question.
I am not a direct shareholder in Home Depot. I am only an indirect shareholder through various mutual funds. Because I am only an indirect shareholder, I have delegated my right to exert control over the business to the fund manager. I generally invest my money through funds where I believe the fund manager does a good job of promoting shareholder interests, e.g., Vanguard.
It's true that there is very little shareholder control over CEO pay through proxy voting. But CEO pay is actually only the tip of the iceberg. Really, the issue is not CEO pay -- it's the agency problem caused by the split between ownership and management. Management often makes decisions that promote its own interests, rather than those of the shareholders. That could be as simple as spending $5000 on a fancy desk and chair and engraved nameplate for all the executives, rather than $500 on some basic office furniture that does the job just fine.
The good news is that the system is self-correcting, thanks to mergers and acquisitions, LBOs, and private equity buyouts. If a company is being mismanaged in a way that reduces shareholder value, another owner can take control and fix the mismanagement problems and restore shareholder value. Really, we should all be thanking people like Warren Buffett for helping solve this problem and keeping our capital markets efficient!
More can be done, but the answer isn't to regulate CEO salaries. The single biggest thing we could do to help fix shareholder agency problems is to cut the tax on dividends and capital gains to zero.
I don't think CEO pay should be regulated
but I don't think that shareholders should be left in the dark either.
And I don't think that pension gurantees should be turned over to the govt, to make it easier for mergers, and hedge fund profiteers to make money wether there is a loss or a gain.
Personally, I am more of a small business fan. I am hoping to see tax breaks and incentives that encourage small businesses, with that have a local flavor, instead of one size fits all box stores...... where all you can get is cheap crap from China.
It is the economy, stupid.
And while it may not be your business
It's like pornography, if the severance package is obsenely high, for the amount of product produced, it just is galling. I may not be able to describe why I find it offensive, but like pornography I recognize it as offensive when I see it.
The other way it is my business......... I figure if they are paying out that much, then they could lower their prices.
Let's just say I do not shop at Home Depot. My choice as a consumer.
It is the economy, stupid.
If that was so:
Enron would have been bought out, instead of all those companies that had pension funds to loot. Cutting taxes generally, and capital gains particularly is part of what started all the mess.
When taxes were very high, taking large amounts of money out of a business was counter productive, so it was reinvested and the business grown, even when profit margins were slim, because moving the money around was expensive.
When taxes were cut there was an orgy of "buyouts" that looted companies, left hulks with huge debts of junk bonds, and moved on to other victims. All those who held good bonds with those companies, saw them reduced overnight to junk, without say or compensation, and those who held stock were often paid in junk stock, or watched their stock become junk.
Our family had a lot of (dispersed as the family grew) stock in a company my grandfather rescued in the thirties. It paid a good dividend every quarter and had a solid niche market.
A pirate got it and paid less than a years dividend for the stock, but it was either take that or get nothing, as he looted it, and dumped stockholders, bond holders, pension fund, and employees, in the trash.
The Self Made Man is just not admitting where he got all the parts.
If you don't like the buyout offer, outbid it
If someone makes an offer for the shares of a company, the holders of the shares are free to accept or decline that offer.
If you think it's a bad offer, you are free to (1) decline it and/or (2) make a new, higher offer for the shares.
It's not clear to me what you would propose as an alternative. It is a violation of the shareholders' property rights to tell them that they are *not* allowed to accept a tender offer for their shares from a prospective buyer.
If you want to stop someone from buying up 51% of the shares of a company and taking control, then put your money where your mouth is and make a better offer.
You make it sound like this was all involuntary. The reality is that all of the involved parties agreed to the transaction.
A bond is a contract. The buyer and seller of the bond both agree to that contract. The contract may contain conditions that help secure the buyer's principal and income stream -- for example, the bond may be collateralized, or it may place constraints on the seller's financial ratios (e.g. limits on the debt/equity ratio). If the buyers of a bond don't like the terms of the contract, no one forces them to buy the bond. When I buy a bond, I am agreeing that I am OK with the bond's associated contract.
Bondholders can *easily* prevent a company from loading itself up with additional debt. All they have to do is demand debt/equity limits in the bond contracts. Once those provisions are in the bonds, the company is stuck with them. If they want more debt than the limits will allow, then they have to renegotiate the bond contracts -- a negotiation where the company will be in a position of weakness.
Shareholders have even more power. Again, when someone makes a buyout offer for a share that I own, I can accept or decline. If I accept, clearly I think it's a good deal. If I decline, but enough other people accept to give the buyers a controlling 51% share, and no one else is willing to step up and make a better counteroffer, then, sorry, I just have to suck it up and deal. These are the risks you take when you invest in stocks. (The fact that no one was willing to make a better counteroffer does not reflect well on the true value of my shares. It suggests that maybe I was *wrong* about the offer being a bad deal.)
If I think I am receiving overvalued "junk stock" in return for my stock, that's no big deal. I have a very simple recourse: accept the offer, and then immediately sell the "junk stock" to make a nice profit. I can also buy put options in the junk stock as an insurance policy.
Exactly -- and this is precisely the problem. Businesses *should not* reinvest profits unless the return on equity they can get from reinvesting is higher than their shareholders can earn elsewhere.
Our tax policies favor reinvestment over paying dividends. This is a very bad thing.
Well if YOU consider it just
That's good enough for me. No, wait... doesn't cut it.
And yet capitialism causes harm to millions of people. Polllution affects plenty of people not engaged in the transaction. Monopolies, war-profiteering etc all cause people harm.
I could easily extend your argument by pointing out that you are engaged in a voluntary transaction by which you pay taxes and submit to the law, and in return are granted services and rights, therefore the Democratric Republic is, by your definition inherently just. That the various nations (LLC) have a monopoly on land and that you need to submit to one of their laws in order to gain access to living space is just the nature of things in a marketplace of limited resources.
BTW, can you name any inherently just society that is founded on your principles? Or is this just all theoretical?
I already specifically mentioned externalities
That's an externality. It's easily solved with pollution taxes.
Without a precise definition of what "war-profiteering" means, it's hard to respond to that one. But as far as monopolies go, no, that's false. Monopolies do not cause harm -- they merely do less good than the alternative. You might as well say that the lack of a cure for cancer causes people harm, too.
But even this is too unkind to monopolies -- a perfectly price-discriminating monopoly is actually just as efficient as perfect competition, and in general, it is not obvious what "alternative" a monopoly should really be compared to. There are plenty of cases where a monopoly may well be the *most* efficient form of economic organization.
Hong Kong is pretty darn close to it.
How about jail time?
Instead of just taxing pollution, we could also outlaw it. Otherwise we might as well have a murder tax. Any trade study includes minimum mandatory requirements as well as weighted metrics to be traded (which is what a tax is, a weighting adjustment)
War profiteering means using disasters (such as war) to profit off of someone's inability to look for alternative service proviers. It is the $20 bottle of water and it is illegal so as to avoid justifiable breakdown in law and order
that goes hand in hand with it.
As for monopolies not causing harm, that's bunk. Monopolies were about maximizing long term profit, and as such, would often operate at a loss in an area with a competitor and make up for it elsewhere where they could maximize their profit (area under the supply demand curve) until they either forced the small business to sell or go under. They would also often force suppliers to deal only with them or lose access to their larger market (something Walmart does fairly often to destroy smaller competitors)
Jail time is the wrong solution
Pollution has a cost associated with it, but it also has benefits associated with it. We are not trying to eliminate pollution -- we simply don't want people to over-pollute, which is most easily accomplished by having them pay the full cost associated with it.
Setting a pollution threshold and having jail time beyond it would lead to a suboptimal outcome. We would have *too much* pollution if the optimum amount of pollution was below the threshold, while we would have *too little* pollution if the optimum amount of pollution was above the threshold.
If the threshold was set *exactly* right we might end up with an optimal outcome, but chances are we would set it wrong. Also, even if we did set it right, how should that pollution be divvied up among people? It is unlikely, for example, that the optimal outcome would be obtained by granting every single person an equal number of pollution credits, unless the credits were tradeable.
Why not a murder tax? Simple:
1. It's not clear what "benefits" accrue from murder. In most cases, none. There is generally no good that comes from murder. This is not a case of a cost-benefit tradeoff. Or, to put it more bluntly: the optimum number of murders is zero.
2. Many murderers would likely lack sufficient assets to pay the murder tax, making it ineffective at preventing murder by the poor.
...whereas the optimum level of pollution is definitely *not* zero, and a pollution tax *would* adequately discourage pollution among the poor.
Per this definition, I am in favor of "war profiteering."
Well, not just monopolies.
None of what you said about monopolies (some of which is debatable, but whatever) contradicts what I said. Remember, all I said was that monopolies don't cause harm, they cause *less good*. A monopoly is still causing good -- it's just that more of the good accrues to its shareholders and less of it accrues to its customers, and the total amount of good may be somewhat reduced. In welfare economics jargon: a monopoly has a larger "producer surplus", a smaller "consumer surplus", and leads to a reduction in total welfare relative to perfect competition. It does *not*, however, lead to a reduction in total welfare compared to the market not existing in the first place.
Please explain the benefits of pollution
Pollution is the downside of industry and making people clean up their own mess is a long standing tradition. Sorry, we'll remove the murder tax and make it a freedom to vent one's emotion tax. (Sometimes that venting might rise to physical violence. As long as you pay the medical bill, it is cost neutral!)
Fine, you are in favor or war profiteering, and the violence that goes with it. You can wish that people who will die without that water and don't have massive savings accounts won't resort to violence, but that doesn't make it so.
Plus, you're theory is inconsistent within itself
If the whole idea is to avoid having the government set the 'optimal' levels, by taxing it, you are merely throttling it. If you set your pollution tax too high, you have 'too little' pollution, too low and you have 'too much'
Correct, but easier to determine cost than quantity
It is far easier to determine the approximate cost to third parties of pollution (e.g. by estimating the impact on health from more pollution in the air) than it is to determine the optimal quantity of pollution. Indeed, in order to determine the optimal quantity, we would first have to determine the cost anyway, and then we would have to make a ton of assumptions about the benefit people are getting from the polluting activities.
The former is a problem that we can approach scientifically using well-known economic methods. The latter is not. For example, how would you go about estimating the value of the benefit I got out of my recent trip to San Diego?
Setting the tax approximately right is not hard to do. Economic researchers have been studying this problem for many years now and have written many reams of papers on the topic.
Setting the quantity right, on the other hand, is essentially impossible.
And yet it has never been done
The costs of pollution extend way beyond health issues. If it were easy to evaluate the costs of pollution, the country wouldn't argue about climate change. How much will that cost? There seems to be a bit of a wee bit of a disagreement on this issue despite your protestation that it would be simple to evaluate.
To illustrate, I could simplify your question the same way you did the costs of pollution and just say that the benefits you recieved was the difference in your bank account, it would be about as accurate as any pollution costs anyone has come up with.
Not true -- plenty of research on costs of pollution
Check out the research of William Nordhaus, who has done some excellent work on this topic.
http://nordhaus.econ.yale.edu/
In fact there is a *huge* amount of economic research on this topic.
Yes, certainly people will disagree about the cost of various types of pollution. However, we can definitely come up with reasonable estimates and refine them over time as new data comes in.
In any event, determining the cost of pollution is still many times easier than determining the optimal *quantity* of pollution. Given the choice of doing this the easy way or the hard way, surely we can agree to go for the easy way?
I'm saying there is no interest in estimating it accurately
The folks who do the polluting have made it abundantly clear that they are more than willing to spend a large amount of money funding fake research and fraudulent PR in order to make certain that those cost estimates are low. Not on the lower side of accurate, Low.
So I don't believe the people involved are honest partners in solving the problem.
Completely seperately, your model seems to ignore that the marginal cost of pollution is not constant. Just as the body can take a certain amount of cyanide without harm, but after a certain amount it keels over, nature can process a certain amount of pollution in a given time frame. Going beyond that has a larger and more permanent effect. So do we take the farely common energy approach and make large scale polluters pay more in that there 100th unit of pollution has a higher cost then their first? If not, then you aren't actually dealing with the real 'cost' of pollution which is NOT constant and if you do, then you are absolutely determining the optimal quantity of pollution based on the shape of the cost curve.
Don't need cost curve
Huh? Would you care to point to some other research to back up your claim that, for example, Nordhaus's research on the costs of CO2 emissions is flawed? As far as I can tell, Nordhaus's research is respected by people on all sides of the debate.
If you want to refute his research, you will have to do better than to produce unsubstantiated claims of researcher bias.
Absolutely not. That would guarantee a suboptimal outcome, because a small-scale polluter would face a lower marginal cost of pollution than a large-scale polluter. All polluters should pay the same tax on the last (i.e. marginal) ton of pollutants -- they should all face an identical tradeoff.
Your proposal would cause small-scale polluters to pollute *too much* and large-scale polluters to pollute *too little* compared to an appropriately chosen flat rate.
No, you *don't* need the full cost curve. You only need to know the marginal cost at the point of equilibrium.
You are making the classic economic error of thinking in terms of averages rather than in terms of the margin. The margin is what counts -- the decision of "should I emit one more ton of pollutants?"
I'm doing the exact opposite
I was specifically talking about the marginal cost. The fact that the economy's 1st ton of pollution costs less than the economy's millionth ton of pollution as the environment is unable to process that millionth ton but it is the first. The consequences (not financial costs) of pollution are not linear.
As for researcher bias, you are being disengenous. I said that the INDUSTRIES spend large amounts of money attempting to push or disparage studies based entirely on whether the study is advantageous to them rather than based on the science. I didn't reference Nordhaus at all as he isn't relevant to the discussion until the industry is willing to accept peer-researched science as meaningul independent to how it impacts their bottom line. There are many methods of evaluating the cost of pollution; all different, which was my whole point.
As for sub-optimal, the concept of optimization is dependent on the measurement function that one uses. You have decided to use a linear cost function while I do not agree. Optimization flows from that function and not vice versa.
I'm not following
I don't get your point. Nordhaus's research is directly relevant to the question of estimating the costs of pollution. I don't understand why you would propose that we ignore his research. It seems like you are using someone else's bad behavior to justify your own. ("They're ignoring the research, so I'm going to ignore the research too!")
Again, I don't follow. I am *not* saying that the cost function of pollution is linear. I am only saying that you can adequately approximate that function near the point of interest using a linear function -- take the derivative to get the slope.
Yes, the behavior of the cost function might be nonlinear far away from the point of equilibrium. But so what? The point of equilibrium is the only point that matters. The rest is all sunk costs (or sunk benefits, as the case may be).
Suppose that the optimal quantity of a given pollutant is 1 million tons per year, and the derivative of the cost function near that point is $100/ton. In that case, we want to charge everyone a tax of $100/ton; this ensures that people will only pollute if they get more than $100/ton worth of benefits.
If we set a marginal tax rate of $80/ton for people who pollute only a little bit and a marginal tax rate of $120/ton for people who pollute a lot, then the people who pollute a little bit will (suboptimally) engage in activities that give them only $85/ton in benefits, while the people who pollute a lot will (suboptimally) *not* engage in activities that give them $115/ton in benefits. (This outcome is definitely *not* Pareto efficient.)
The important thing is to make the marginal tax rate equal to the marginal cost at or near the point of equilibrium.
Now, you may accurately point out that *right now* we may be a ways away from the optimal quantity, so the marginal cost where we are right now is not the same as the marginal cost at the optimal quantity. That is true -- but this is only a theoretical problem, not a practical one. We can solve this problem by phasing in the tax over time. If the current marginal cost is $200/ton, but the marginal cost at the optimal quantity is only $100/ton, then if we phase in the tax $20/ton/year at a time, we will quickly find out when we've overshot.
Upside of pollution
My parents and I just recently went on a trip to San Diego. That required getting in an airplane and flying there. Airplanes produce pollution.
How would you propose that we have traveled to San Diego without producing any pollution?
It is purely a cost-benefit tradeoff. If the benefit we get from the pollution-creating activity exceeds the cost of the pollution, then polluting is the rational thing to do.
Cheney has a staff opening. You should apply.
Ever since Scooter got busted, Cheney has been searching for a right hand man.
You'd be perfect.
If you really believe this is the "fight of our lives," how come you're not in Iraq?
Don't you mean
a fall guy?
Sic semper tyrannis
Democracy v. ?
"Pure democracy" is nothing but a conservative canard, and a straw man. It doesn't exist. There is no country in the world that could be called a "democracy" which doesn't have a really hard to change constitution protecting existing political system and individual and minority rights and where all laws are created by direct vote of 50% + 1 population.
Sic semper tyrannis
Many counterexamples
Really? Then how is it that...
- ...the President is allowed to veto any law and can only be overridden by a 2/3 vote in both houses of Congress?
- ...the President is not selected by nationwide popular vote?
- ...representation in the Senate is completely unrelated to the population of your state?
- ...originally only white male landowners of a certain age were allowed to vote?
- ...even now only those 18 and up are allowed to vote?
- ...citizens were formerly not allowed to vote directly for senators, only indirectly for state legislatures who would then elect senators?
- ...and, lest I forget, permanent residents who are not citizens (green card holders) are not allowed to vote?
Let's not even get into the Supreme Court, or the fact that the Constitution only gives Congress a small set of enumerated powers...
The American system was and is in many ways procedurally un-democratic -- and quite intentionally so!
I would argue that the American system has been made *too* democratic. I want us to go back to indirect election of senators. I want the Supreme Court to go back to its Lochner jurisprudence. And I even think there is something to be said for the idea that voting should be restricted to landowners -- perhaps only 10-20% of the population should be allowed to vote, or different people should receive varying numbers of votes (e.g. you get one vote for each dollar of taxes you pay).
Arguing for regressive policies
This reminds me of the days when only plantation owners could vote.
How about making it only those that graduate from with degress in history can vote.
Or only those with red hair can vote.
Or we could just make it a lottery. 20% of the population can vote.
Of course I assume that only landowners, would weed out the many "undesirable" elements of society. Like Peace Corps workers, or military, or missionaries who live in other countries while maintaining US citizenship.
Or how about only stock holders can vote.
I think only stock holders have a true sense of what free market capitalism is all about. They understand the market forces that bring us the true meaning of life, making money.
It is the economy, stupid.
I'd give everyone as many chances as it takes
I think I should vote and then everyone who votes the same way as me gets their vote counted. People who vote differently clearly didn't take things seriously and will have their votes thrown out.
Since this is just as fair, and just as likely to happen as LZ's idea, let's try my idea first. Then, as soon as I and everyone who agrees with me on all topics is ready, we'll switch to his idea.
What is the rationale for having elections in the first place?
I know you're all being sarcastic and all, but I consider it a serious question: why have elections in the first place? What is the point? It is not at all obvious that an election results in a better outcome than a dictatorship. Given the choice between living in Venezuela under Hugo Chavez (an elected despot) or in Communist China (a semi-benevolent dictatorship), I would pick China any day.
In reality, a single vote *never* makes a difference. Whether I personally vote or not has *zero* impact on the outcome. Therefore, I have *zero* incentive to vote, or to vote correctly, or to learn about the issues that impact my vote. Arguably, not voting is the rational thing to do.
Further, Arrow's Theorem and other research on voting demonstrates the ineffectiveness of voting as a way of choosing between three or more alternatives.
So, really, why? Why is voting better than the alternative? And, especially, why have such a large pool of voters? The more voters, the *less* incentive you have to vote correctly.
Again, I suspect that it was sarcastic, but the idea of having a lottery to decide who gets to vote is actually *not* such a bad idea. If only 1% of the population was randomly selected each year to be eligible to vote, you would have a much stronger incentive to vote and to learn about the issues, because the probability that your vote would decide the outcome would be many times higher.
Power gets wielded
Elections are necessary to let people wield their power. Numbers, money, fervency are all forms of power that, if not given a place, lead to revolution. If only 1% of the people had the opportunity to vote, then the other 99% would have had no opportunity to wield their power at the ballot box during that (and possibly many cycles) and would therefore feel more willing to ignore the effects of said vote.
It is the reason that trust in the electoral process is as important as actual accuracy in that election. When people feel that fraud is more likely, they are more likely to view the rulers as a dictatorship and are therefore more likely to believe that force is the only method to enforce a change in policy.
And yes, it was sarcasm intended to point out that every change-the-vote idea I've ever seen is all about making sure that 'people more like me' are the ones to vote.
Terrible rationale for elections
But elections, oddly enough, *don't* give individual people any power. Remember, the marginal voter has zero influence. Whether I vote or not literally makes no difference. Even in my most local elections, the probability of my vote tipping the outcome is negligible. The probability that I can influence enough people to tip the outcome is also negligible.
And why is allowing people to "wield their power" a good thing? Do we really want people "wielding power" against other people? Isn't that called "tyranny?" You claim that the alternative is a revolution. I would claim that what you have really stated is the following:
"Many people, every so often, have a mostly irrational urge to change the political direction of their country. By allowing people to vote, we give them a harmless way to vent this urge, by giving them the perception of control or influence over the system (when of course we know that they really have almost no influence at all). Absent elections, they would vent this urge in a far *more* destructive fashion, like a revolution. Of course, people might catch on to our diabolical scheme to keep their urges in check, so we'd better have lots of propaganda to remind people that their vote 'counts!'"
Good article on this general topic:
http://www.tcsdaily.com/article.aspx?id=010407A
Clearly, you don't know math
I guess it comes with the economic statistic background (sorry, we mathematicians make fun of folks who can't get their dependent and independent axis' right).
A number divided by a non infinite number is NOT zero. It is just small. You get some say. If you care strongly, you can multiply that power by getting out there and convincing others to change their vote (or make it in the first place) (The power of fervency)
So I reject your false quote based on the false premise. They ARE wielding their power and influence.
No, my influence from voting really is effectively zero
We do not have a proportional voting system. Losing with 49.9% of the vote and losing with 5% of the vote result in the same outcome.
My vote is either completely decisive (it flips the outcome), or it is completely pointless (it doesn't flip the outcome).
By looking at historic election results, we can estimate the probability that my vote will be decisive. That probability is, for all practical purposes, zero.
It's even worse if you look at something like my congressional district, where the Democrat usually wins with about 70% of the vote. The probability of flipping the outcome really is zero. The same is true of the races for state representative and state senator.
And even then, suppose I *did* flip the outcome of one of those races... OK, so the Democrats' majority in the CA Assembly shrinks by one. So what? They still have a huge majority and can pass anything they want. The influence of the marginal voter in the CA Assembly is *also* fairly minimal (though nonzero).
How many votes can I realistically expect to flip this way? Very few. I would be doing a positively spectacular job if I managed to flip 100 votes. Flipping 100 votes *does* have a somewhat larger chance of flipping the outcome of a race, but, at least where I live, only in the very local races.
But this is slightly missing the point. I may be able to convince people that their voting preference is wrong. But still, when it comes down to election day, each person must make an *individual* decision: do I vote or not?
This is the problem of the marginal voter. The marginal voter has zero incentive to vote because the cost of going to the polling booth is many times greater than any conceivable benefit that might happen even if by some slim chance his one vote flipped the outcome.
There is no plausible scenario where going to the polls to vote is a net win to me.
(And, can you please lay off the ad hominem "you don't know math" stuff? I'm not sure how you would know what my math background is. You might be surprised.)
Fine don't vote!
Nothing you do matters, except for where you spend your money.
You seem to obsess over how much control you think others have over you life.
But I would venture that you are financially well off, and have plenty of freedom to do as you please. You have as much freedom as the rest of us do.
And in case you hadn't looked around. The world is controlled by your view of things much more so than the world is controlled by mine.
The free marketeers have been dictating our financial policies for a long time.
It is the economy, stupid.
It wasn't an ad hominem
First, I turned it into a mathematician vs economist comment IMMEDIATELY. Something considering your economics talk, I assumed you would get. Second, in any case, I backed it up by pointing out what your grevious math error was (confusing small with zero in order to strengthen your point), thirdly, since I did not say that your MATH EDUCATION was lacking, your final point wasn't relevant.
Nonetheless, I apologize if you were hurt as it was not my intent.
That said, you still have major logical flaws in your thesis. First you are ignoring the impact of a closer election on the behavior of a politician. But even ignoring that, how do you explain the hundreds of millions of dollars that the market spends on trying to influence those useless votes? Apparently 'the market' that you esteem so highly completely disagrees with you.
Dude you are Radical
totally radical. But I like that.
How about we do like in Australia. It is a law that everyone must vote.
That way less time is spent on campaigns that appeal to wedge issues or wedge voters.
The main concern is does your vote count.
And there are local elections, city councils have a huge impact on communities.
And people rarely even pay attention.
It is the economy, stupid.
Mandatory voting is likely to make the problem worse, not better
First, mandatory voting means more votes, which means that the probability of the marginal voter changing the outcome becomes lower, not higher. That means that the incentive for voters to learn about the issues decreases, not increases.
Second, it seems likely to me that voting is a self-selecting process. People who vote are probably better informed on average about issues than people who don't vote. Isn't it a good thing if people who don't understand the issues choose not to vote?
Norm Ornstein from AEI
has studied it and thinks it has possibiites.
It is campaign finance reform with the least regulation.
Just as you advocate for educating us on economics,
We should invest heavily in PUBLIC education and emphasize things besides nationalized test scores, things like, civics....... and taking part.
If you FEAR the ignorance of the masses, then you should advocate for public education.
Education is the best answer to so many problems.
It should be a matter of pride.
Civil service of some sort could be mandatory, military, Americorps, PeaceCorps.
Good Gawd here we are involved in a War for Democracy, holding up our country as a beacon, and you are saying our democracy stinks.
It is the economy, stupid.
Elections remove people from power
Elections not only allow someone to take power, they also remove people from power. One cannot easily remove a dictator.
Power does corrupt even the most honest soul. Elections provide a peaceful mechanism for removing someone deemed too corrupt by the populace.
"Perplexity is the beginning of knowledge" -- Kahlil Gibran
There are no honestly elected despots!
Venezuela today is the very outcome of your favorite policies, up till very recently they have had a series of kleptocrats that have looted the country for almost 200 years.
This has also been true across South America. That there is a general disgust and leftward trend is as a result of those policies.
In Venezuela, you would have free access to any information in the world via the internet, you could start any small business anywhere, and even have government help, and you could say anything to anybody.
In China you could do none of those things. China is amassing great wealth, mostly in the hands of very few, by destroying even those human rights kept, under the old Communists, even selling off the organs of their dissenters.
If Venezuela did this I would oppose Venezuela, but they are doing what Europe did in the past 60 years, and if they keep their heads about them, can accomplish as much.
I fear that you would prefer to make the US more like China, the way things are going you may get your wish.
The Self Made Man is just not admitting where he got all the parts.
You misinterpreted
what I was saying and are arguing my point. There is no country in the world that uses pure (I assume you mean direct) democracy exclusively, nor has one ever existed.
(Now, before you bring the Swiss into it - they do require double majority in constitutional matters, and in the ancient Greece only citizens with military training were able to vote.)
A system where every law is passed by the vote of 50%+1 of the entire population is no way to run a state and I doubt that even the strongest proponents of a non-authoritarian rule would argue otherwise.
Whether American system has been made too democratic or not democratic enough is purely a historical and quite irrelevant point, as we live in 21st century now - not 18th. The fact that unlike in 18th century - we now consider all people equal, at least when it comes to participation in political process, makes a lot of American political institutions dated and incompatible with what in present day could be considered fair political system.
Sic semper tyrannis
Conservative reason to help the poor