Defending the One Percent | Hacker News Reader

Defending the One Percent

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30 pointsscribu51 comments

Isn't the entire 'one percent' debate (in America) centered around the fact that one party wants to institute a modest tax increase on that group, and the other party wants to, irrationally, keep cutting their taxes even when faced with deficits? Nobody reasonable is actually advocating for 'perfect economic equality'.

I'm generally a free market guy (in that I believe the free market should be the foundation of the economy but not dictate every aspect of it), but I just can't see a reasonable tax increase as being a problem.

I don't see a problem with a reasonable minimum wage either ($12-$15/hr), especially when tax dollars are subsidizing the working-poor with food stamps, students loans, public housing, health-care etc. As much as I'm disappointed with Wal-Mart for not being embarrassed their employees are on food stamps, I understand that they can't raise their wage unilaterally lest it puts them at a competitive disadvantage - which is why you need legislation! Make it fair for everybody.

and the other party wants to, irrationally, keep cutting their taxes even when faced with deficits

One thing we've learned is that never, ever happens. Instead, increased revenues, such as provided by Reagan's tax rate cuts, allows higher leverage AKA deficits. So "starving the beast" seems to be the best approach, until, of course, the accumulated deficits are inevitably reneged on one way or another (e.g. inflation "works").

It's important to note that they (republicans) tend to want to cut taxes but not services, because they can't compromise and cut both the military and medicare/Medicaid/welfare/etc. They just want to cut the latter.

The lack of compromise leads to neither happening so many republicans really don't want smaller govt. Some do, don't get me wrong. But many don't.

Actually, Republicans can be quite willing to cut the military, remember Dwight "military-industrial complex" Eisenhower, under who it was cut after the Korean War wound down, and you could make a case that the current sequester is cutting the budget. It's very very hard to analyze, because you have to factor in wars, especially ones we did not exactly choose to fight (e.g. Korean), and weapons procurement. E.g. however bogus the F-35 is, or the premature cut of manufacturing the F-22 was, one way or another we'd be spending a lot of money right now replacing the tactical airplanes we started building in the '70s (especially since the F-15A through D models were improperly manufactured: https://en.wikipedia.org/wiki/McDonnell_Douglas_F-15_Eagle#S...)

And I see no signs the establishment GOP is truly interested in cutting "medicare/Medicaid/welfare", however much they might talk about cutting the latter two. Heck, they can't even bring themselves to terminate with extreme prejudice the National Endowment for the Arts.

I'd argue that this was a very, very different brand of republicans you had then compared to the current breed, which seems to lack any rationality, whatsoever.

Eisenhower was a republican before the conservative military hawks entered the republican demographic (resulting after Nixon's Southern Strategy[https://en.wikipedia.org/wiki/Southern_strategy]) so they were the progressive and liberal republican party. More closely linked to a libertarian ideology of the time and would be likened by most modern liberal democrats.

It's not that simple. E.g. how would you score Teddy Roosevelt, who was both a progressive and a "conservative military hawk". Vs. William Howard Taft, who per Wikipedia had a "domestic agenda [that] emphasized trust-busting, civil service reform, strengthening the Interstate Commerce Commission, improving the performance of the postal service, and passage of the Sixteenth Amendment" (income tax) but had a less bellicose foreign policy?

I actually don't know much about that period of US history, but certainly Goldwater counts for both a "conservative" military hawk and a libertarian. And domestically Nixon was quite liberal.

Basically, there's been "liberal" and "conservative" strands in Republican party history for more than a century, continuing to this day. Things don't map out in simple ways, e.g. the first post-Snowden House vote on those issues didn't split along any recognizable patterns I could discern, party, region of the country, etc.

There have been many proposals on the table.

Most republican proposals called for cutting the nominal rate, while getting rid of all the loopholes.

I like it because it introduces transparency. What good is a high nominal rate, if nobody ever pays that rate? The money is usually parked off-shore, etc.

While that's a good approach, it has the problem that it starts another cycle of adding loopholes for the usual considerations.

Can you provide evidence that Reagan's tax rate cuts actually improved revenues? Here's a counterargument that they didn't have that effect: http://krugman.blogs.nytimes.com/2008/01/17/reagan-and-reven...

Look at this: https://en.wikipedia.org/wiki/File:U.S.-income-taxes-out-of-...

The tax rate cuts were fully in place in 1982-3 (the phased in delay the Democratic House insisted on put a lot of thing on hold till then, and likely extended the recession Reagan inherited, see below for more), then income tax revenue steadily marches up. (I fudge the year based on memory and how there are various effective years, e.g. there's the usually but not always a calendar year for tax rates (and some are retroactive in various ways!), they have to be fully payed in the next year, and the Federal fiscal year runs October 1 to September 30, e.g. 2016 starts October 1st, 2015.

All Krugman argues in that column you linked to is how we calculate the magnitude of the increase, he doesn't deny there wasn't a substantial one, he says 19% for 1980-88. Which of course substantially understates the reality (but also note you need to adjust for inflation, it was roaring when Reagan entered office, and the prime rate was 20% or greater (!)), since that includes the period before the rates fully changed after which people, including my father, changed their business behavior.

Ah, here's a table with accurate figures for all three types of income, "ordinary" AKA "unearned" (things like interest), "earned" (wages) and realized capital gains, http://eml.berkeley.edu/~saez/course/Labortaxes/taxableincom... page 4 table A1, note Carter radically reduced the latter from 39.9%, also e.g. deregulated airlines and trucking, and note the JFK rate cuts from "I like Ike???" 91% !!! for income (and also note Reagan started indexing various details for inflation):

  1980 70.0 50.0 28.0
  1981 68.8 50.0 23.7
  1982 50.0 50.0 20.0
  1987 38.5 38.5 28.0
  1988 28.8 28.0 28.0

Note again how the 1986 changes immediately increased capital gains tax rates while phasing in the income tax cuts.

The history of this is ferociously complicated, I haven't even mentioned the FICA rate increases, who's large excesses went into the general budget, filling Al Gore's infamous "lock box" with unmarketable Federal government IOUs (bonds). I "know" as much as I do since I came of age in the '70s, when all this really started to get out of hand, Nixon closed the gold window (for foreigners, FDR did for us in 1933), we were again allowed to own bullion gold, Nixon did his wage and price controls, the Yom-Kippur War resulted in an oil embargo, contemporaneously OPEC at least partly legitimately increased dollar oil prices since the dollar was being devalued (see gold window above), government control of oil and gas was retained when the wage and price controls were generally relaxed, all that resulted in the '70s "energy crisis", which ended when Reagan ended the controls, Carter's obsession with oil "windfall profits", etc. etc. etc.

Seriously, in many ways the economic history of the last decade and a half has been simpler....

The absurd example in the second paragraph put me off, so I didn't really find it in me to read the argument thoroughly. But if the premise is that a single man can "come up with an idea" and magically produce an ipod with comparable personal effort, and no reliance of a third world factory economy -- as an author can come up with a book -- then I don't think the author of the article has the required connection to reality to discuss economics at all.

Earlier today I came across this, which may (or may not) be an interesting counter-point -- or at least make a meta-point: "Exposing the false prophets of social transformation": https://opendemocracy.net/transformation/nicole-aschoff/expo...

Did the iPod require a "third world factory economy", or was that merely the best way to make it when it was developed?

Go back to the original Apple II and subsequent products, they were per memory and Wikipedia all made in the US until the late 1990s. The IBM PC was originally manufactured by SCI Systems in Huntsville, Alabama.

Woohoo -- thanks for calling out my previous employer, which also built Macs for a good while (in Colorado).

What a lot of folks don't seem to understand about "third world factory economies" is that the prototyping and initial product runs are still frequently done in the west. Some EMS companies, like Flex, even have hardware incubators in Silicon Valley (google "Lab IX" sometime); all of them offer JDM & ODM services, too.

Well if they doubled the price of iPods in order to manufacture them inside the United States, no one would buy an iPod and the product would fail.

That's not to say American manufacturing would cause the price to double, just pointing out that where you manufacture something is an important part of the product planning process.

I believe the fact that this factory economy is third world is very much besides the point that e12e was trying to make.

Paraphrasing, I think the point is that writing a book and building an iPod are vastly different tasks, and immensely so. A better criticism to what e12e was trying to imply is perhaps that Rowling certainly wouldn't be rich if it weren't for a network of publishers. Like Jobs, she depended on other people for channeling the income she received to her. (Of course, the difference in how that happened is still huge.)

A large number (majority?) of people who are proponents for american-style capitalism, advocating for less government intervention, are from big universities around the U.S, and will often earn a relatively high wage. Although it's very hard to quantify, I feel as though these people are very disassociated from the everyday life the claim to be studying. If you live near Harvard earning ~300k a year, how easy is it to imagine (pretend?) that everything is fine and that the skewed income distribution is actually a positive thing. Boiled down - can people who are part of such a skewed system really produce unbiased studies and theories about the system?

They back up their claims with various arguments as to the nature of the average consumer and echoes and remnants of trickle-down economics theories.

Why don't people instead look at the actual world for more accurate evidence? The U.S. is a pioneer of creating highly divided cultures, with the top 1% earning ridiculous amounts of money and living in relative luxury, while having a very large population of people struggling to make ends meet, or even get healthcare due to the associated costs.

At the same time, countries exercising a highly socialistic economic policy (welfare countries), such as the Nordics and Germany to some extent have a far higher "average" quality of life, as well as (arguably) a happier population. Being a taxi driver in Norway or Denmark doesn't mean you live in near-poverty and have to work 80 hours a week to make ends meet.

While I'll try to not get into details of economic theory, and so forth, one question that has always irked me is the following:

Does the evidence not speak for itself? In what country has pure capitalism (or at least as close as we can get), actually worked to produce a happy and harmonious society?

Personally I think that the growth of the banking sector is the problem, as it tends to capture more and more of the profits and allocate them to the pay of the bankers. It's also a brain-drain on other industries. Finally, the banks do occasionally lose everything and then we have to bail them out.

Remove the "bail them out" part of the process and you'd likely see a fair amount of income equality restored. Banking has a concentrating effect on the economy, and the bigger the bank the more concentrating it is.

If we had banks small enough to fail, they'd still concentrate but to a much smaller degree. That'd be good for income equality and good for putting smart people to work in favor of small businesses instead of against them, and good for reducing the tax burden on the non-rich who ultimately fund the bailouts.

We know when the firewall was turned off:

https://en.wikipedia.org/wiki/Glass–Steagall_Legislation

https://en.wikipedia.org/wiki/Gramm–Leach–Bliley_Act

I'm not sure that repealing Glass-Steagall was the problem. We did have the savings & loan crisis and that was prior to the repeal.

Personally I think it has more to do with the banks going public and then being on the treadmill of ever increasing profits. The NYT has a piece on the issue from 1999.

http://query.nytimes.com/gst/fullpage.html?res=9C03E7DF1639F...

Slate also documents the banks going public, again prior to repealing Glass-Steagall.

http://www.slate.com/articles/business/moneybox/2010/01/the_...

Consolidation of oligops, helped too, corporate welfare has always been the norm & the revolving door b/t industry & regulators is a new-ish trick they seem to have mastered to a T. The Commodities Modernization Act of 1999+Financial Services Commodities Act of 1999 were not the bills that killed Glass-Steagall, but they were the final stake in the heart of the GD I protections that have been eroded over the last 30 years, or so. Frontline had a great doc'y on it years ago documenting the billions of lobbyist dollars that went into the piecemeal dismantling the G-S Act, but I cannot locate it currently(my n900 is almost just a phone these days...which is nice). Now that we are entrenched in the GD II, aka the 'Great Recovery', we can use some of our idle time to look back at commodities and securities price graphs over the last 20-30 years. It may be a coincidence that prices tripled, quadrupled & quintupled since 2000, but I doubt it. It took them 7 years to ruin the world economy and it would have come quicker if 9/11 hadn't made them pause to shed some crocodile tears.

PS: hey Walter, to answer your questions from last month I can no longer post to: Yes & Mostly abstinence. More I rely on an org, the more I am beholden to them. Stick mostly to bare essentials.

The world is going to need a "minimal tech" community to share best practices :)

Wow lots of strawmen here.

"A large number (majority?) of people who are proponents for american-style capitalism, advocating for less government intervention, are from big universities around the U.S"

Source? So what?

"Boiled down - can people who are part of such a skewed system really produce unbiased studies and theories about the system?"

Can people who are part of the lower earning rung of society give a unbiased opinion of the system?

"Does the evidence not speak for itself? In what country has pure capitalism (or at least as close as we can get), actually worked to produce a happy and harmonious society?"

Yes the evidence does speak for itself. Capitalism worked out pretty great for much of Western Civilization. Everywhere where more socialist approaches were tried it failed. Just ask all soviet countries', Japan, East Germany, China etc. citizens if they are happy.

America is not for nothing the land of opportunity, and it is not for nothing that emigrants are flocking to the USA, Europe and Australia.

Unfortunately the soviets discovered you cannot have a classless society. It is that drive to elevate yourself to a higher class that makes us want to achieve more than the absolute minimum required effort.

Creative quoting on your part but let's not pretend he was talking about communism. It stated pretty clearly [countries with] "highly socialistic economic policy (welfare countries)". All the mentioned countries are successfull capitalistic countries with better safeguards and policies.

Well, in Germany we call the system we're using 'social market economy' and it does not aspire to be pure capitalism.

> America is not for nothing the land of opportunity

The U.S. has low social mobility compared to other developed countries. What claim does it currently have on being the land of opportunity?

"Source? So what?"

Apologies for that intro, I had planned to delete it but I'll leave it so your comment makes sense. I was planning to expand a thought about how it's always the rich who casually conclude that lower taxes and less welfare will help the economy.

"Can people who are part of the lower earning rung of society give a unbiased opinion of the system?"

In a democracy, yes, they do. Someone who is lower down on the earning rung of society (say earning the median US income), has a far more accurate view of the "average" society than someone who is at the very top, merely because they represent an average citizen.

"Yes the evidence does speak for itself. Capitalism worked out pretty great for much of Western Civilization. Everywhere where more socialist approaches were tried it failed. Just ask all soviet countries', Japan, East Germany, China etc. citizens if they are happy."

East Germany no longer exists and Russia is essentially a dictatorship with a very powerful upper class of plutocrats, not unlike the US. The happiest countries in the world are Switzerland, Iceland, Denmark, Norway and Canada according to the World Happiness index. Do you notice a trend among those countries?

"America is not for nothing the land of opportunity, and it is not for nothing that emigrants are flocking to the USA, Europe and Australia."

Denmark has twice the social mobility of "the land of opportunity" as defined by the probability of someone born in the poorest 25% of society making his/her way up to the richest 25% of society within their lifetime. I don't think America is the land of opportunity, unless you count the children of the rich who were shuttled into Ivy Leagues as those with opportunity.

"Unfortunately the soviets discovered you cannot have a classless society. It is that drive to elevate yourself to a higher class that makes us want to achieve more than the absolute minimum required effort."

I do not disagree, it is impossible to have a completely classless society. But that does not mean that the lowest class cannot have a decent quality of life and financial security. I think it begins with education. After all, only 5.7% of the US population has an education above high-school level. (obviously skewed by <18s, but still a shocking number)

I must apologize as well, starting with saying it's straw men is just a tad too passive aggressive.

We are if nothing else viewing the world through the glasses of our own experiences, and as such I must ask that you take my comment as such as such (I'll explain in just a second). There may yet be a better system than naked capitalism, but from experience socialism / welfare states can be a slippery slope, where the masses vote for ever increasing entitlements that does little to alleviate their circumstances.

The countries you have mentioned are indeed the epitomes of good governance and social responsibilty, but they have one other very important characteristic going for them. They are mostly homogeneous. I don't think the USA can say that of themselves anymore and from experience that complicates things quite a bit.

My rose tinted glasses :) . I am from South Africa, another non-homogeneous society with deep scars where we have slowly seen the expenditure of social grants (state welfare) creep up with very little to show for it [1], up to the point where the entire economy is risking collapse [2], not so much because of the expenditure of social grants per se, but because the society here have adopted an attitude of entitlement and looting [3].

So I guess my point is (and was poorly made), be very careful of the law of unintended consequences.

>>"I think it begins with education."

Maybe, who knows. I personally don't believe that anymore.

>>"merely because they represent an average citizen."

I think as in most discussions, balance between viewpoints is what must be sought. Certainly the average citizen must have at least some forms of state provided protection from the rich and powerful and poverty safety nets. But I have also seen the opposite where the poor votes for larger and larger royalties for themselves until the most industrious of society simply packs up and leaves, not willing to part with their earnings with no compensation in return. (Again my rose tinted glasses, in South Africa 2 million tax payers pay 80% of all taxes, and supports 18 million social grant receivers and 2 million salaried government workers. That is not a sustainable situation).

[1] http://www.bdlive.co.za/national/2013/10/02/growth-in-social...

[2] http://www.bdlive.co.za/national/2013/06/28/south-africa-fac...

[3] http://www.dailymaverick.co.za/article/2014-01-20-analysis-a...

"Boiled down - can people who are part of such a skewed system really produce unbiased studies and theories about the system?"

Those who are part of the 99% exhibit a bias as well. This is the nature of political economy arguments.

This article seems to argue "Taxing the rich leads to reduced growth and therefore all of society is worse off for it." That every extra $1 the rich makes leads to a economy wide increase in $1.10. If this were true we would want to reduce taxation levels of the rich considerably. And we would expect inequality to be associated with very strong growth.

Luckily we don't have to just speculate. The IMF has done in-depth research on this topic. And they found found that not only is growth not associated with inequality, but there is evidence inequality actually leads to lower growth rates.[0]

[0]https://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf

You know when even the IMF is recommending we tax the rich more, there's probably something to the idea...

> This article seems to argue "Taxing the rich leads to reduced growth and therefore all of society is worse off for it."

No, that's the utilitarian argument, which the article specifically considers unsatisfying, instead proposing an argument from justice.

The trouble is not that inequality exists -- I think, that some form is necessary in our world -- but that the inequality is increasing in a rapid rate and that in the current state of our society, not achievements where the society benefits are rewarded by the system, but rather achievements where society looses (e.g. speculations, pure possession of wealth, investing -- whatever frivolous it might be, omitting taxes by using legal holes and off-shore trickery, ....)

Even Buffett spoke out, that his class wins, but it should not (for the good of society). And he said, that something is wrong, when his secretary has to pay a much higher tax-rate as himself.

> Even Buffett spoke out, that his class wins, but it should not (for the good of society). And he said, that something is wrong, when his secretary has to pay a much higher tax-rate as himself.

Did you read the article? Mankiw noted that when CBO statistics are used, taking into account all taxation, not just income taxes, the United States have a very progressive tax system.

On paper.

In reality, there are many loopholes (the more money involved, the more fully legal loopholes)

No, the CBO study looked at the actual dollars coming from people; as Prof. Mankiw notes, while there might be invididual exceptions the overall figures are as stated.

So, your claim is, that Buffett does not know how much taxes he pays? If this would be true, I would wonder, how he got all his money in the first place.

>the United States have a very progressive tax system

Compared to which system? The system of Sweden or of Uruguay? You of course can find dozens of third world countries, with dysfunctional tax system.

I guess, they are similar studies as can be bought (in dozens) in the country, I live in.

> So, your claim is, that Buffett does not know how much taxes he pays?

No, Prof. Mankiw's claim is that Mr. Buffett did not include all taxes in that statement.

> > the United States have a very progressive tax system

> Compared to which system?

In absolute terms, according to the CBO's figures. The CBO is the Congressional Budget Office, and is widely reputed to be honest.

"In absolute terms" -- you currently know, that there are more underdeveloped countries in the world than so called "first world" countries? And when you also count in countries like Russia than you get a feeling, what is compared to.

Once, the US prided itself to be the most developed nation, today it must compare itself with Uganda and other countries.

Compare tax rates of today with those after the 2nd WW -- the era, where the US flourished most. Today, only the banks of the US are flourishing. When you are no banker and earn below 7 figures a year, you should start to think.

The sentence about "honesty" I will not comment!

Be advised that the most relevant credential for this author is that he was the top economic advisor to the administration of George W. Bush. Defending the 1% is literally what he does for a living.

I could not finish reading this. The paper started with examples of entrepreneurial success that depend heavily upon government regulation; namely the artificial scarcity generated from copyright and patents.

Also the statement "These high earners have made significant economic contributions...", which is an axiom I am not willing to accept without some convincing argument.

I found it impossible to read a paper that started dense with immature postulations and grandiose assumptions. The author should have been aware of the political climate of such a paper and attempted some care of his argument: At the very least admit to the reader that he's making ridiculous assumptions, but the argument will reveal itself with more reading.

Oh.. I thought he was going to go on an argument that we need to implement basic income as a method for improving efficiency when his second paragraph included an author who put herself into the one percent by being creative and making a product while being unemployed and on socialist welfare and that by removing a lot of what is effectively the "chaff" of the capitalist workforce the workforce that wants to be part of the workforce improves overall.

I guess since he also included an businessman known for his abhorrent disdain for socialism that he flippantly crams his vehicles into spots designated for people with disabilities, I should have realized the final outcome would be an argument that extreme wealth creates utilitarianism and is more efficient then trying to broaden wealth.

Reminds me of the decay of the Roman empire in the 400's and how the rich started abstaining from the government and society that tried to represent and assist everyone to create micro-communities in their villas and start up the process of feudalism. What shall we call our new era of a society that is now 90% capital deprived and rising? Feudalism 2.0? Feudl.ism? Feu.dl?

This guy's a professor of economics at Harvard?! ...Actually that explains a lot.

Yeah, I was thinking that too... it is really well written, it makes compelling and nuanced arguments and it sets a nice thought framework for the debate. This is really an excellent piece, no wonder he's an econ professor at one of the most prestigious university in the world, that guy is brilliant.

haha I think they were implying the opposite

Either you way over did the sarcasm or you and I are reading totally different articles. This thing is full of undefended assertions and logical holes. The thought experiment it opened with is so simplistic that it does little beyond revealing the author's bias and assumptions. Assumptions that are absurdly disconnected from reality (such as all voluntary transactions make both people's lives better).

I genuinely think it's a great piece, no sarcasm intended (though I obviously playfully ignored the fact that the OP was implying the opposite)

Experiments in general are meant to be simplistic. The goal is to remove as many confounding factors as possible to isolate a single phenomenon and study it.

From there, he builds up to a more realistic model by incorporating more and more factors.

Inequality of opportunity is a much bigger problem than inequality of, say, income. An ideal community is a place where every individual's contributions are enabled to the maximum. Capitalistic economies start out that way for a while, and then lock in opportunities to the people who need them the least. Guarantee education, and basic livelihood and the community reaps the benefits.

A few years ago some of his own students staged a walkout of his lectures because of his innate desire to laud the American oligarchs:

http://www.thecrimson.com/article/2011/11/2/mankiw-walkout-e...

Please mark as pdf.

No kidding. I never really pay attention to links on HN because I tend to trust the community. I clicked on this one and a PDF started downloading to my horror. I immediately nuked it from my download folder.

http://www.cvedetails.com/vulnerability-list/vendor_id-53/pr...

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