Posts tagged ‘rich’

Great Wealth is Bad Only When It Comes from Cronyism Instead of Creating Consumer Value

I book marked this long ago when I was in Europe and forgot to blog it.  From the Washington Post

You might be used to hearing criticisms of inequality, but economists actually debate this point. Some argue that inequality can propel growth: They say that since the rich are able to save the most, they can actually afford to finance more business activity, or that the kinds of taxes and redistributive programs that are typically used to spread out wealth are inefficient.

Other economists argue that inequality is a drag on growth. They say it prevents the poor from acquiring the collateral necessary to take out loans to start businesses, or get the education and training necessary for a dynamic economy. Others say inequality leads to political instability that can be economically damaging.

A new study that has been accepted by the Journal of Comparative Economics helps resolve this debate. Using an inventive new way to measure billionaire wealth, Sutirtha Bagchi of Villanova University and Jan Svejnar of Columbia University find that it’s not the level of inequality that matters for growth so much as the reason that inequality happened in the first place.

Specifically, when billionaires get their wealth because of political connections, that wealth inequality tends to drag on the broader economy, the study finds. But when billionaires get their wealth through the market — through business activities that are not related to the government — it does not.

Megan McArdle on "Washington Issues"

I thought this was a pretty good observation:

Why then, do so many people know about the tax treatment of carried interest? Because it is the epitome of a Washington Issue. A Washington Issue is something that sounds terrible, has little meaningful impact on more than a handful of people, and most importantly, allows you to pretend that you are addressing a different, very difficult issue that would impact a large number of people if you actually tried to make meaningful change -- people who might get angry and do something rash, such as voting for your opponent.

The carried interest issue is thus a convenient way for Democrats making stump speeches to claim that they’re really going to do something about inequality and cronyism, and maybe fund some important new spending on hard-working American families. With the entrance of Jeb Bush and Donald Trump into the arena, it is also a way for Republicans to seem tough on rich special interests while simultaneously proposing tax plans that will help affluent Americans hold on to a lot more of their income and wealth.

As with most Washington Issues, my actual level of concern about carried-interest taxation hovers somewhere between “neighbor’s bathroom grout drama” and “Menudo reunion tour.” Nonetheless, I’m beginning to wish that Congress would get rid of it without demanding anything in return, just to force politicians to talk about something that actually matters.

My tax proposal, as a reminder:

1.  Eliminate all deductions in the individual income tax code

2.  Eliminate the corporate income tax.

3.  Tax capital gains and dividends as regular income.

4.  Eliminate the death tax as well as the write-up of asset values at death

The New Rich -- Living the High Life Through Your Non-Profit

Several months ago, a lot of folks where shocked to find that the Clinton Foundation only spent $9 million in direct aid out of a total budget of $150 million, with the rest going to salaries and bonuses and luxury travel for family and friends and other members of the Clinton posse.

None of this surprised me.  From my time at Ivy League schools, I know any number of kids from rich families that work for some sort of trust or non-profit that has nominally charitable goals, but most of whose budget seems to go to lavish parties, first-class travel, and sinecures for various wealthy family scions.

But this week comes a story from the climate world that demonstrates that making a fortune from your non-profit is not just for the old money any more -- it appears to be a great way for activists to build new fortunes.

The story starts with the abhorrent letter by 20 university professors urging President Obama to use the RICO statute (usually thought of as a tool to fight organized crime) to jail people who disagree with them in a scientific debate.  The letter was authored by Jagadish Shukla of George Mason University, and seems to take the position that all climate skeptics are part of an organized coordinated gang that are actively promoting ideas they know to be wrong solely for financial enrichment. (I will give the near-universal skeptic reply to this:  "So where is my Exxon check?!"

Anyway, a couple of folks, including Roger Pielke, Jr. and Steve McIntyre, both folks who get accused of being oil industry funded but who in fact get little or no funding from any such source, wondered where  Shukla's funding comes from.   Shukla gets what looks like a very generous salary from George Mason University of $314,000 a year.  Power to him on that score.  However, the more interesting part is where he makes the rest of his money, because it turns out his university salary is well under half his total income.  The "non-profits" he controls pays him, his family, and his friends over $800,000 a year in compensation, all paid out of government grants that supposedly are to support science.

A number of years ago Shukla created a couple of non-profits called the Institute for Global Environment and Security (IGES) and the Center for Ocean Land Atmosphere Interactions (COLA).  Both were founded by Shukla and are essentially controlled by him, though both now have some sort of institutional relationship with George Mason University as well.  Steve McIntyre has the whole story in its various details.

COLA and IGES both seem to have gotten most of their revenues from NSF, NASA, and NOAA grants.    Over the years, the IGES appears to have collected over $75 million in grants.  As an aside, this single set of grants to one tiny, you-never-even-heard-of-it climate non-profit is very likely way higher than the cumulative sum total of all money ever paid to skeptics.   I have always thought that warmists freaking out over the trivial sums of money going to skeptics is a bit like a football coach who is winning 97-0 freaking out in anger over the other team finally picking up a first down.

Apparently a LOT of this non-profit grant money ends up in the Shukla family bank accounts.

In 2001, the earliest year thus far publicly available, in 2001, in addition to his university salary (not yet available, but presumably about $125,000), Shukla and his wife received a further $214,496  in compensation from IGES (Shukla -$128,796; Anne Shukla – $85,700).  Their combined compensation from IGES doubled over the next two years to approximately $400,000 (additional to Shukla’s university salary of say $130,000), for combined compensation of about $530,000 by 2004.

Shukla’s university salary increased dramatically over the decade reaching $250,866 by 2013 and $314,000 by 2014.  (In this latter year, Shukla was paid much more than Ed Wegman, a George Mason professor of similar seniority). Meanwhile, despite the apparent transition of IGES to George Mason, the income of the Shuklas from IGES continued to increase, reaching $547,000 by 2013.

Grant records are a real mess but it looks like from George Mason University press releases that IGES and its successor recently got a $10 million five-year grant, or $2 million a year from the government.  Of that money:

  • approximately $550,000 a year goes to Shukla and his wife as salaries
  • some amount, perhaps $90,000 a year, goes to Shukla's daughter as salary
  • $171,000 a year goes as salary to James Kinter, an associate of Shukla at George Mason
  • An unknown amount goes for Shukla's expenses, for example travel.  When was the last time you ever heard of a climate conference, or any NGO conference, being held at, say, the Dallas-Ft Worth Airport Marriott?  No, because these conferences are really meant as paid vacation opportunities as taxpayer expense for non-profit executives.

I don't think it would be too much of a stretch, if one includes travel and personal expenses paid, that half the government grants to this non-profit are going to support the lifestyle of Shukla and his friends and family.  Note this is not money for Shukla's research or lab, this is money paid to him personally.

Progressives always like to point out examples of corruption in for-profit companies, and certainly those exist.  But there are numerous market and legal checks that bring accountability for such corruption.  But nothing of the sort exists in the non-profit world.  Not only are there few accountability mechanisms, but most of these non-profits are very good at using their stated good intentions as a shield from scrutiny -- "How can you accuse us of corruption, we are doing such important work!"

Postscript:  Oddly, another form of this non-profit scam exists in my industry.  As a reminder, my company privately operates public recreation areas.  Several folks have tried to set up what I call for-profit non-profits.  An individual will create a non-profit, and then pay themselves some salary that is equal to or even greater than the profits they would get as an owner.  They are not avoiding taxes -- they still have to pay taxes on that salary just like I have to pay taxes (at the same individual tax rates) on my pass-through profits.

What they are seeking are two advantages:

  • They are hoping to avoid some expensive labor law.  In most cases, these folks over-estimate how much a non-profit shell shelters them from labor law, but there are certain regulations (like the new regulations by the Obama Administration that force junior managers to be paid by the hour rather than be salaried) that do apply differently or not at all to a non-profit.
  • They are seeking to take advantage of a bias among many government employees, specifically that these government employees are skeptical of, or even despise, for-profit private enterprise.  As a result, when seeking to outsource certain operations on public lands, some individual decision-makers in government will have a preference for giving the contract to a nominal non-profit.   In California, there is even legislation that gives this bias a force of law, opening certain government contracting opportunities only to non-profits and not for-profits.

The latter can have hilarious results.  There is one non-profit I know of that is a total dodge, but the "owner" is really good at piously talking about his organization being "cleaner" because it is a non-profit, while all the while paying himself a salary higher than my last year's profits.

Dear Americans: You Are All Rich

I have made the point a number of times that the bottom 20th percentile (in term of income) of US families would actually be in the 80th percentile in many nations.  In fact, it turns out that the 20th percentile person in the US would not just be relatively rich in many other countries, but on a global scale sits around the 85th percentile of world income.  Virtually no one in the US would even be in the bottom half of world income. This chart from a recent study was shared by David Henderson:



The axes are not well labelled here.  How to read this is the X axis is the income percentile of a person in their home country.  Then one reads up, and the Y axis is the income percentile that person would be at for the whole world.  So a person who is at the 20th percentile in the USA is around the 85th percentile worldwide.  It is interesting that by hugging the 45 degree line, China mirrors the world average.  If you want to envision the distribution of absolute incomes around the world, think of China.

This raises a certain question for American redistributionists.  Ayn Rand used to point out that redistributionists always love the idea because they feel like they got to pick the pocket of the guy wealthier than them, forgetting that someone poorer gets to pick their pocket.  Essentially, in a truly global redistribution scheme, everyone in the US would be paying rather than receiving.

A better way to achieve global income equality would be to have more countries emulate the American rule of law, property rights regime, and relatively free markets.  Ironically, most American redistributionists support the opposite, arguing that in many was the USA should emulate the authoritarianism of these poorer countries.  Which I suppose will achieve global income equality as well, though in a much less attractive way.

Cargo Cult Regulation -- How Much Effect Did Card and Krueger Have on New York's Fast Food Minimum Wage Ruling?

New York is proposing a $15 minimum wage for any fast-food restaurants that are part of a national chain with 30 or more stores.  How this survives any sort of equal protection test is beyond me -- if I own a restaurant and call it "coyote's place" I don't have to pay $15, but if I own a single restaurant where I pay franchise fees to McDonald's, I do.

Let's leave the inevitable court challenges on fairness aside.  Of all the possible industries, I wonder why the focus on just fast food and on just large franchises.  Some of it is obviously mindless Progressive soak the rich thinking, and some of it is a liberal distaste for any foods that are not kale.  Is it just because the fast food workers have been the most vocal?  If so, that is pretty lame the the government is merely focusing on the squeaky wheel, a real indictment of any pretensions technocratic politicians have to legislating intelligently.

But I wonder if it is something else.  Pick a progressive on the street, and in the unlikely event they can name any economic study, that study will probably be Card and Krueger's study of the effect of a minimum wage increase in New Jersey.   Sixty bazillion studies have confirmed what most of us know in our bones to be true, that raising the price of labor decreases demand for that labor.  Card and Krueger said it did not -- and that a minimum wage increase may have even increased demand for labor -- which pretty much has made it the economic bible of the Progressive Left.

What intrigues me is that Card and Krueger specifically looked at the effect of the minimum wage on large chain fast food stores.  In this study (I will explain the likely reason in a moment) they found that when the minimum wage increased for all businesses in New Jersey, the employment at large chain fast food restaurants went up.

So I wonder if the Progressives making this ruling in New York thought to themselves -- "we want to raise the minimum wage.  Well, the one place where we KNOW it will have no negative effect from Card and Krueger is on large fast food chains, so...."

By the way, there are a lot of critiques of Card & Krueger's study.  The most powerful in my mind is that when a minimum wage is raised, often the largest volume and highest productivity companies in any given business will absorb it the best.  One explanation of the Card & Krueger result is that the minimum wage slammed employment in small ma and pa restaurants, driving business to the larger volume restaurants and chains.  As a whole, in this theory, the industry saw a net loss in employment and a shift in employment from smaller to larger firms.  By measuring only the effect on larger firms, Card and Krueger completely missed what was going on.

Best Possible Thing for Low-Skilled Workers: Having Others Get Rich off Their Labor

I had an argument in a comment thread of one of Kevin Drum's minimum wage or some such posts (sorry, I can't even find which one now to link it).  Anyway, my concluding remark was that the best thing that could ever happen to the unemployed, and particularly to low-skilled workers, would be if people were to discover ways to get rich from their labor.   Of course, I was met with total scorn, as if I had suggested sacrificing virgins to improve the climate.

The reason I mention this is that this disconnect seems to be at the heart of the problem of Progressivism.  I am convinced that they honestly want to help low-skilled workers and the poor do better economically, but they advocate for policies that are 180-degrees askew.  Most of what they wish for -- higher minimum wages, larger mandated benefits packages, more paid leave, more ability to sue employers over trivial slights -- absolutely, with near mathematical precision, raise the cost of hiring low-skill workers, making it increasingly unlikely anyone will do so.  Low-skill workers get hired for one and only one reason (which is the same reason any worker gets hired):  someone thinks they can profit from that labor.  It is the potential for profit that is the sole reason for hiring anyone, but it is exactly that profit potential that Progressives most fear and deride.

Rental Market in San Francisco

One of the problems with making predictions about bad public policy is that sometimes you have to wait 20-30 years until after the policy was passed to see all the negative consequences play out, by which time people have forgotten about the initial policy changes that caused all the disruption.

But I got to skip those 30 years in San Francisco.  I never really paid that much attention to the city until I read a book called "Season of the Witch" written by a progressive about life in San Francisco in the 60's and 70's.  As I wrote previously:

What struck me most were the policies these folks on the Progressive Left had on housing.  They had three simultaneous policy goals:

  1. Limit San Francisco from building upward (taller).  San Francisco is a bit like Manhattan in that the really desirable part where everyone wants to live is pretty small.  There was (and I suppose still is) a desire by landowners to build taller buildings, to house more people on the same bit of  valuable land.  Progressives (along with many others across the political spectrum) were fighting to have the city prevent this increased density as a threat to San Francisco's "character".
  2. Reduce population density in existing buildings.  Progressive reformers were seeking to get rid of crazy-crowded rooming houses like those in Chinatown
  3. Control and cap rents.  This was the "next thing" that Harvey Milk, for example, was working on just before he was shot -- bringing rent controls to San Francisco.

My first thought was to wonder how a person could hold these three goals in mind without recognizing the inevitable consequences, but I guess it's that cognitive dissonance that keeps socialism alive.   But it should not be hard to figure out what the outcome should be of combining: a) some of the most desirable real estate in the country with b) an effective cap on density and thus capacity and c) caps on rents.  Rental housing is going to be shifted to privately owned units (coops and condos) and prices of those are going to skyrocket.  You are going to end up with real estate only the rich can afford to purchases and a shortage of rental properties at any price.  Those people with grandfathered controlled rents will be stuck there, without any mobility.

Since reading the book, I have paid attention to stories on the rental market in San Francisco.  In short, it is just as screwed up as would have expected 40 years ago when both density and rent caps were put in place.

As San Francisco's housing crisis continues to pit long-term residents against the recent influx of affluent tech employees, Airbnb and other short-term rentals have become a source of tension. Today San Francisco Mayor Ed Lee and Supervisor Mark Farrell hoped to ease some of that tension by introducing reforms to the city's short-term rental laws that put a 120 day yearly cap on all short-term rentals. The package of amendments also introduced the creation of a new Office of Short-Term Rental Administration and Enforcement for the city staff to "coordinate in the administration and aggressive enforcement of the law."

Airbnb and other short-term rental services have come under fire in San Francisco because they take rental units off an already limited housing market. The current law caps short-term rentals at 90 days when the host is not present. If the host is present -- for example a room rental in an occupied home -- there is no yearly cap. Today's amendment package sets caps for both types of rentals. Mayor Lee said in a statement, "this legislation will help keep our City more affordable for homesharers, preserve rental housing for San Franciscans, protect neighborhood character and streamline permitting and enforcement under a fair set of regulations."

This is from a tech site that has developed a reputation, at least with me, for being astoundingly ignorant of even basic economics, so one has to make some guesses at what is going on here.  For example, it seems odd to say that renting a space on a short term lease rather than long-term somehow takes rental units off the market.  They are still being rented, are they not?  How could one describe them as being taken off the market?

My guess at what is going on here is that short-term rentals are likely exempt from some of the most onerous portions of San Francisco tenant law.   Likely, renting short-term allows one to bypass rent controls and charge more.  It also likely gives one some relief from the city and the state's horrendous tenant protections that make it virtually impossible to evict a tenant.  You lease to someone in SF, and you are stuck with them for life like a shark with a remora on his back, even if that tenant refuses to pay rent for years or constantly trashes the apartment.

San Francisco has created a system where they are absolutely guaranteed to have a shortage of rental properties.  Rather than address those laws that create the problem, politicians put their whole effort -- creating brand new agencies, no less -- to stop entrepreneurs from circumventing the madness and trying to provide housing.

Postscript:  The war against wealthy tech workers in SF is in full swing.  What SF would really like to do, I think, is close its borders and institute immigration controls to keep these folks out.  I know there are many parts of the world, including unfortunately our country, that work to keep poor uneducated immigrants seeking opportunity out.  But has there ever been a time or place in history where a particular place worked so hard to keep out rich educated immigrants seeking only to spend their money?

Authoritarian Quote of the Day

From San Francisco Board of Education member Sandra Fewer:

“Choice is inherently inequitable”

Because some people make choices that their betters, like Ms. Fewer, do not agree with, government needs the power to override individual decision-making.  We will come back to this, but it turns out the problem here may not be too much choice, but too little.

The entire article is about school choice (defined VERY narrowly as the ability to pick what monopoly government school you want to attend, not the ability to take a voucher and pick any school) leading to a greater racial sorting, rather than mixing, in San Francisco schools.

I have no idea why that would be.  And I still have no idea, because the article presented absolutely no facts.  Oddly, my first guess -- that racial sorting of schools might match racial sorting of neighborhoods since people want to send their kids to a school that is close with kids and parents they know -- is not even mentioned until, in passing, it comes up around the 35th paragraph.

One of the issues that seems to be confusing the author is that people sometimes express preferences they don't act on.  You see that in the very examples in the article.  All the parents interviewed say they want a multi-cultural school, perhaps because they are really passionate about that or perhaps because they know they are supposed to say that, but it is not hard to see that these folks care more about having a school nearby with kids and parents with whom they are culturally comfortable.   I find it a little weird that the city with possibly the most famous ethnic neighborhood in the country (ie Chinatown) has trouble understanding that there are totally non-racist reasons why ethnic groups, particularly those who speak other languages, might voluntarily sort.

One funny thing in the article that I have pointed out in other contexts: in the absence of facts people like to explain bad trends (and it is not even established that this is necessarily a bad trend, just a trend that planners don't like) with whatever they were against before the trend revealed itself.  Teachers don't like the school choice system, so school choice is to blame.  Social activists are concerned with income inequality, so they blame the problem on income inequality.

In fact, a lot of the article pursues the inequality thesis, but the interesting lede, in my mind, was buried way way down in the article:

Though the number of racially isolated schools jumped by 22 percent over three years, according to a district study, to date none are more than 60 percent white. Yet in a broader sense, white children are the most isolated in the city.

Whites are 42 percent of the city’s overall population, 33 percent of the children but only 12 percent of public school students. Why aren’t more white children in public school? Again, money appears to be the key factor: The average white San Franciscan makes three times more money than the average black resident. Whites on average also make 66 percent more money than Latinos, and 44 percent more than Asians. Possibly as a result of this wealth, white children are much more likely to be enrolled in private schools than other racial groups.

So the reason public schools are sorting into minority-majority  schools is that whites have mostly bailed from the school system altogether.   My response to this is not that "choice" has created inequality but that choice hasn't gone far enough.  Don't just give public school kids a choice of which crappy public school they want to attend, but hand them the public money the system was going to spend on their education and let them go anywhere for school, just like rich kids.

Everyone Gets Wealthier, Minorities and Women Hardest Hit

It is hard to look at this data and see anything but a positive story, but apparently the New York Times and the rest of the media only see tragedy.  If there is no problem, there is no justification for increased government power, therefore there must be a problem.


(I am presuming this is in real dollars rather than nominal, but God forbid that the NYT ever makes such things clear).  They do manage to show a slight negative recent trend in the growth of the percentage of low income Americans, but only by cherry-picking the dates of comparison to the peaks and troughs of the last two business cycles.  Overall I would read the story as middle and lower class are moving into upper income brackets, but the Times headlines it as "Middle Class Shrinks Further as More Fall Out Instead of Climbing Up," illustrated with a classic empathy-inducing sad-mom photo.

By the way, since more rich people fall than middle class, it would seem to make sense to discuss instead the falling fortunes of rich people, but of course the NYT has no desire to write that article.

Quantitative Easing and the Left's Relationship to the Rich and to Large Corporations

The Left spends a lot of time railing against the rich and large corporations.  But in practice, they seem hell-bent on lining the pockets of exactly these groups.  Today the ECB announces a one trillion plus euro government buyback of public and private securities.

Between Japan, the US, and now Europe, the world's central banks are printing money like crazy to inflate securities values around the world -- debt securities directly by buying them but indirectly a lot of the money spills over into stocks as well.  This has been a huge windfall for people whose income mostly comes from capital gains (i.e. rich people) and institutions that have access to bond and equity markets (i.e. large corporations).  You can see the effects in the skyrocketing income inequality numbers over the last 6 years.  On the other end, as a small business person, you sure can't see any difference in my access or cost of capital.  It is still just as impossible to get a cash flow loan as it always was.

I Just Don't Understand the Appeal of Short Street Car Lines in Low-Density Towns

More street car craziness.  I love the phrase "modern street car".  Like an up-to-date stagecoach.

Despite mounting construction costs and uncertainty over federal funds, Tempe is still seeking to be the Valley's first city with a modern streetcar system traveling through its downtown.


Valley Metro executives Steve Banta and Wulf Grote reviewed the project with the Tempe City Council this month.

The new alignment has lengthened the route from 2.6 miles to 3 miles and increased costs. The cost range is now $175 million to $200 million depending on the type of vehicle technology used.

First, there is no way it comes in for these numbers, but even accepting the mid-point of their estimates this is $62.5 million a mile or $11,837 per foot.  Of course there is also the operating cost, which will certainly lose money since there is no way people are going to pay much for a maximum 3 mile ride.  My prediction is that they will sell the project promising that there will be a fare that helps cover costs but they will drop the fare quickly once implemented  (because no one will ride this thing unless it is free).  And and don't forget the cost of the loss of an entire lane of roadway each way to the trains.

Just consider how much less 4 buses running in a 3-mile circle would cost, and they would only consume a tiny fraction of the existing road capacity, rather than taking up an entire lane just for themselves.  This is just a huge upper-middle class subsidy, a special favor to rich people who think buses are too low class to ride but are OK being seen on a train.  Madness.

My best guess is that these kinds of projects have become prestige projects for government officials.  This is the way they show off to each other and act as a portfolio for them to seek larger jobs in bigger cities.

On Income Inequality

Most folks who lament income inequality have the following model in their head:  Wealth comes at a fixed rate from a fountain in the desert, and the rich are the piggy ones who hog all the output of the fountain and won't let anyone else in close to drink.  The more anyone takes from the fountain, the less that is available for everyone else.  And this was probably a pretty good model for considering pre-capitalist societies.  The actual robber barons, before the term was abused to describe successful industrialists of the 19th century, were petty nobles (ie the government of the time) who did absolutely nothing useful except prey on those around them and on those who passed by conducting rudimentary commerce, taking from them by force.  That is not how most people become wealthy today, with the exception of a few beneficiaries of cronyism (e.g. Terry McAuliffe).

These issues are dealt with quite clearly from a surprising source -- this review by an economist of the movie "Elysium".   I don't really get the schtick at the end with the Adam Smith cameo, but the rest is quite good

Postscript:  A while back I was reading the Devil's Candy (terrific book) and thinking about movie-making.  Perhaps it is not surprising that wealthy movie stars think in zero-sum terms.  I suppose much of their success can be thought of as zero-sum.  If I get the part, someone else does not.  If I get an extra point of the gross, that is less for everyone else.  If this movie does well, that probably means less revenue for another movie that came out the same weekend.   Particularly for actors trying to make it or on the rise, movies have a fixed sum of value and they are trying to grab a larger share of that value.

It is interesting that in their own sphere of influence, I never hear about such folks seeking any sort of income redistribution.  Perhaps I have missed it, but I never hear Matt Damon say "hey, take one of my gross points and split it up among all the craft folks on the movie, or share it out with the 20 guys who didn't land my part."

Our Political Opponents Believe Whatever We Say They Believe

I can think of two groups with whom I have some sympathy -- the Tea Party and climate skeptics -- who share one problem in common:  the media does not come to them to ask them what their positions are.  The media instead goes to their opposition to ask what their positions are.  In other words, the media asks global warming strong believers what the skeptic position is, without ever even talking to skeptics.  It should be no surprise then that these groups get painted with straw men positions that frequently bear no resemblance to their actual beliefs.

Paul Krugman provides an excellent example.  He writes:  (shame on the blog author for not linking Krugman's article, here is the link)

Or we’re told that conservatives, the Tea Party in particular, oppose handouts because they believe in personal responsibility, in a society in which people must bear the consequences of their actions. Yet it’s hard to find angry Tea Party denunciations of huge Wall Street bailouts, of huge bonuses paid to executives who were saved from disaster by government backing and guarantees.

This is really outrageous.  I am not a Tea Partier because they hold a number of positions (e.g. on immigration and gay marriage) opposite of mine.  But to say they somehow have ignored cronyism and bailouts is just absurd.  TARP was one of the instigations, if not the key instigation, for the Tea Party.  As I have written any number of times, the Tea Party and Occupy Wall Street actually shared a number of common complaints about bank bailouts and cronyism.

David Harsanyi has more here.

By the way, it is Hilarious to see Krugman trying to claim the moral high ground on Cronyism, as he has been such a vociferous proponent of the Fed balance sheet expansion, which will likely go down in history as one of the greatest crony giveaways to the rich in history.

Who is the Real Crony, Koch or Reid?

The Senate Majority Leader has decided to try to shame and silence a private citizen for daring to engage in political discourse.  Here is Harry Reid:

I believe in an America where economic opportunity is open to all. And based on their actions and policies they promote, the Koch brothers seem to believe in an America where the system is rigged to benefit the very wealthy.

Remember that this is coming from the man who has somehow become a multi-multi-millionaire over a lifetime of only holding government jobs.

Contrast this with Charles Koch's actual words, parts of which could have come out of the mouth of an occupy Wall Street protester:

I think one of the biggest problems we have in the country is this rampant cronyism where all these large companies are into smash-and-grab, short-term profits, saying how do I get a regulation, or we don’t want to export natural gas because it’s one of our raw materials … Well, you say you believe in free markets, but by your actions you obviously don’t. You believe in cronyism.

And that’s true even at the local level. I mean, how does somebody get started if you have to pay $100,000 or $300,000 to get a medallion to drive a taxi cab? You have to go to school for two years to be a hairdresser. You name it, in every industry we have this. The successful companies try to keep the new entrants down. Now that’s great for a company like ours. We make more money that way because we have less competition and less innovation. But for the country as a whole, it’s horrible.

And for disadvantaged people trying to get started, it’s unconscionable in my view. I think it’s in our long-term interest, in every American’s long-term interest, to fight against this cronyism. As you all have heard me say, the role of business is to create products that make people’s lives better while using fewer resources to do it, and making more resources available to satisfy other needs.

When a company is not being guided by the products they make and what the customers need, but by how they can manipulate the system — getting regulations on their competitors, or mandates on using their products, or eliminating foreign competition — it just lowers the overall standard of living and hurts the disadvantaged the most.We end up with a two-tier system. Those that have, have welfare for the rich. The poor, OK, you have welfare, but you’ve condemned them to a lifetime of dependency and hopelessness.

Yeah, we want “hope and change,” but we want people to have the hope that they can advance on their own merits, rather than the hope that somebody gives them something. That’s better than starving to death, but that, I think, is going to wreck the country. Is it in our business interest? I think it’s in all our long-term interests. It’s not in our short-term interest. And it’s about making money honorably.

People should only profit to the extent they make other people’s lives better. You should profit because you created a better restaurant and people enjoyed going to it. You didn’t force them to go, you don’t have a mandate that you have to go to my restaurant on Tuesdays and Wednesdays or you go to prison. I mean, come on. You feel good about that?

Harry Reid's entire job is built on a foundation of cronyism.  Most of his re-election money comes from outside his home state of Nevada, from companies hoping to score political favors from him and from the power he weilds in the Senate.  If laws were proposed to thwart Congressional cronyism, say through reducing the power of Congress to pick winners and losers, who would fight such a law, Reid or Koch?

Inequality Metrics Exclude Effects of Government Actions to Reduce Inequality

I have seen this fact a number of times and am always amazed when I read it, since poverty figures are never, ever presented with this bit of context

LBJ promised that the war on poverty would be an "investment" that would "return its cost manifold to the entire economy." But the country has invested $20.7 trillion in 2011 dollars over the past 50 years. What does America have to show for its investment? Apparently, almost nothing: The official poverty rate persists with little improvement.

That is in part because the government's poverty figures are misleading. Census defines a family as poor based on income level but doesn't count welfare benefits as a form of income. Thus, government means-tested spending can grow infinitely while the poverty rate remains stagnant.

Rector argues that poor today is very different than poor in  Johnson's day, and that perhaps we might celebrate a bit

Not even government, though, can spend $9,000 per recipient a year and have no impact on living standards. And it shows: Current poverty has little resemblance to poverty 50 years ago. According to a variety of government sources, including census data and surveys by federal agencies, the typical American living below the poverty level in 2013 lives in a house or apartment that is in good repair, equipped with air conditioning and cable TV. His home is larger than the home of the average nonpoor French, German or English man. He has a car, multiple color TVs and a DVD player. More than half the poor have computers and a third have wide, flat-screen TVs. The overwhelming majority of poor Americans are not undernourished and did not suffer from hunger for even one day of the previous year.

Remember what I presented a while back.  This is what the Left thinks, or wants us to think, American income inequality looks like -- our rich are richer than comparable European welfare states because our poor are poorer.

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And this is what income inequality in the US actually looks like -- our rich and middle class are richer, but our poor are not poorer.  A less redistributionist approach floats all boats.  I compared the US to many European welfare states, using the Left's own data source.  Here is an example, but hit the link to see it all.

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Do We Care About Income Inequality, or Absolute Well-Being?

I have a new column up at, and it addresses an issue that has bothered me for a while, specifically:

Do we really care about income inequality, or do we care about absolute well-being of our citizens?  Because as I will show today, these are not necessarily the same thing.

What has always frustrated me about income inequality arguments is that no one ever seems to compare the actual income numbers of the poor between countries.  Sure, the US is more unequal, and I suppose from this we are supposed to infer that the poor in the US are worse off than in “more equal” countries, but is this so?  Why do we almost never see a comparison across countries of absolute well-being?

I have never been able to find a good data source to do this analysis, though I must admit I probably did not look that hard.  But then Kevin Drum (in a post titled “America is the stingiest rich country in the world”) and John Cassidy in the New Yorker pointed me to something called the LIS database, which has cross-country income and demographic data.  I can't vouch for the data quality, but it has the income distribution data and it struck me as appropriate to respond to Drum and Cassidy with their own data.

In short, Cassidy made the point that the Gini coefficient (a statistical measure of income inequality) was higher in the US than for most other wealthy western countries.  Drum made the further point that the US is "stingy" because we do the least to coercively alter this pattern through forced redistribution.

But all we ever see are Gini's are ratios.  We never, ever see a direct comparison of income levels between countries.  So I did that with the data.  I won't reiterate the whole article here, but here is a sample of the analysis, in this case for Sweden which has one of the lowest Gini ratios of western nations and which Drum ranks as among the least "stingy".  This is the model to which the Left wants us to aspire:

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I argue that the purchasing power parity(ppp) numbers are the right way to look at this since we are comparing well-being, and on this basis Sweden may be more equal, but more than 90% of the people in the US are better off.  Sweden does not have a lower Gini because their poor are better off (in fact, if you consider the bottom quartile, the poor are better off in the US).

We are going to see months of obsession by the Left and Obama over income inequality -- but which country would you rather live in, even if you were poor?

Read the whole thing, there are lots of other interesting charts.

Other Countries Have Higher Minimum Wages. They Also Have Higher Something Else...

Kevin Drum argues our minimum wage in the US is really low



A few quick thoughts:

  • I have a constant frustration that we never see these comparisons just on a straight purchasing power parity absolute dollar number.  Numbers related to income distribution are always indexed to a number that is really high in the US, thus making our ratio low.  I seriously doubt Turkey has a higher minimum wage in the US, it just has a much lower median wage.  Does that really make things better there?  I have this problem all the time with poverty numbers.  The one thing I would like to see is, on a PPP basis, a comparison of post-government-transfer income of the US bottom decile or quintile vs. other countries.  Sure, we are more unequal.  But are our poor better or worse off?  The fact that no one on the Left ever shows this number makes me suspect that the US doesn't look bad on it.    This chart, from a Leftish group, implies our income distribution is due to the rich being richer, not the poor being poorer.

  • Drum or whoever is his source for the chart conveniently leaves off countries like Germany, where the minimum wage is zero.  Sort of seems like data cherry-picking to me (though to be fair Germany deals with the issue through a sort of forced unionization law that kind of achieves the same end, but never-the-less their minimum wage is zero).
  • All these European countries may have a higher minimum wage, but they also have something else that is higher:  teen unemployment (and I would guess low-skill unemployment).

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Admittedly this only has a subset of countries, but I borrowed it as-is from Zero Hedge.  By the way, by some bizarre coincidence, the one country -- Germany -- we previously mentioned has no minimum wage is the by far the lowest line on this chart.

Progressives Lamenting the Effects of Progressive Policies

Kevin Drum writes

Via Harrison Jacobs, here's a recent study showing the trend in income segregation in American neighborhoods. Forty years ago, 65 percent of us lived in middle-income neighborhoods. Today, that number is only 42 percent. The rest of us live either in rich neighborhoods or in poor neighborhoods.

This is yet another sign of the collapse of the American middle class, and it's a bad omen for the American political system. We increasingly lack a shared culture or shared experiences, and that makes democracy a tough act to pull off. The well-off have less and less interaction with the poor outside of the market economy, and less and less empathy for how they live their lives. For too many of us, the "general welfare" these days is just an academic abstraction, not a lived experience.

He does not give a reason, and apparently following the links, neither does the study author.  But my guess is that they might well attribute it to 1. effects of racism, 2.  growth of the suburbs, 3. laissez faire capitalism.

I don't think racism can be the driver of this change, given that racism and fear of other cultures is demonstrably better in the last 30 years than at most times in history  (read bout 19th century New York if you are not sure).  The suburbs have been a phenomenon for 100 years or more, and capitalism has been less laissez faire over the last 30 years than at any time in our history.

I actually believe a lot of this income sorting is a direct result of two progressive policies.  I have no data, of course, so I will label these as hypotheses, but I would offer two drivers

  • Strict enforcement of the public school monopoly.  People want good schools for their kids.  Some are wealthy enough to escape to private schools.  But the only way for those who stay in the public school system to get to the best schools is to physically move into their districts.  Over time, home prices in the best districts rise, which gives those schools more money to be even better (since most are property tax funded), and makes them even more attractive.  But as home prices rise, only the most wealthy can afford them.  This is dead easy to model.  Even in a starting state where there are only tiny inhomegeneities between the quality of individual schools, one ends up with a neighborhood sorting by income over time.  Ex post facto attempts to fix this by changing the public school funding model and sending state money to the poorest schools can't reverse it, because at least half of school quality is driven not by money by by the expectations and skills of the parents and children in it.  Thus East St. Louis can have some of the highest per pupil spending in the state but have terrible schools.  A school choice system would not likely end sorting by school, but it would eliminate a huge incentive to sort by neighborhood.
  • Strict zoning.  There has always been a desire among certain people to exclude selected groups from their neighborhoods.  This desire has not changed, or if anything I would argue it has declined somewhat.  What has changed is the increased power that exists to exclude.  Zoning laws give the rich and well-connected the political vehicle to exclude the rabble from their neighborhoods in a way that never would have been possible in a free market.  I live just next to the town of Paradise Valley, which has very strict zoning that is absolutely clearly aimed at keeping everyone but the well-off out.  They will not approve construction of new rental units.  The minimum lot sizes are huge, way beyond the reach of many.

My Corporate Tax Plan

Some folks on the Left are starting to question the corporate income tax, recognizing what economists have known for years, that a lot of the tax is paid by consumers, making it more regressive than just (say) punishing Exxon for being large and productive.

There are many other reasons to hate the corporate income tax

  • It does not raise very much money
  • Its administrative costs (think corporate tax attorneys) is very high
  • It is hugely distortive.  The tax preference for debt over equity helped drive the LBO boom, for example
  • It is the font of much corporate welfare and cronyism.  A LOT of political paybacks get made within the corporate tax system

So here is my simply two-point plan

  1. Eliminate the corporate income tax.  Entirely
  2. Tax dividends and capital gains as regular income on individual tax returns

Done.  All corporate profits get taxed but only when they pass through to individuals as capital gains or dividends.  I think this would actually raise more money but rates could be adjusted (or better yet deductions eliminated) if needs to keep it neutral.

I believe the economic benefits of this would be immediate and substantial.

Of course, corporate tax attorneys are rich and powerful and would cut their throats to stop this.  It would be enormously entertaining to see them try, and in turn see what the reaction of their clients was to this.


Liberal Douchebag vs. Liberal Douchebag: Google Employees Invade San Francisco

This is an article a reader described as being from the "screw them all" category, and I am inclined to agree.  There are many funny bits in the piece, but I particularly liked the San Francisco lefties arguing that these new Google millionaires should act more like the Rockefellers and the Vanderbilts.  LOL for sure.

Incredibly, no one asks the obvious question -- why is home supply in San Francisco treated as zero sum, such that a Google millionaire moving in by necessity kicks some  poor people out.  The reason is that no place in the country does more than San Francisco and the Bay Area to make it impossible to build new housing.  San Francisco has some unique geographic constraints but you don't hear people complaining about this in Houston (which is in fact a much larger city).  In fact, I am trying to imagine Houston complaining about too many rich people moving in.  I just can't seem to focus that image in my head.

Actually, the article does very briefly consider the supply side of the equation, but of course no one mentions government development and zoning restrictions -- its the fault of capitalist speculators!  My reader highlights this paragraph:

Though he doesn’t much care for the start-up douchebags, Redmond blames not individual tech workers for the current crisis, but property speculators and the lawmakers who have let them take advantage of their precious commodity: space. “If we had a major earthquake in San Francisco, the water mains all broke, and some guy showed up with a water truck and started selling water for $10 a gallon, people would be pissed,” he says. “That guy would be ridden out of town; he’d be attacked with sticks and pitchforks. But that’s what the real estate people are doing right now – and they’re getting away with it.”

Memo to speculators:  If I have lost all access to water and am dying of thirst, you are welcome to come to my house and sell water to me for $100 a gallon.  I promise no pitchforks at my house.

PS-  One thing I did not know is that tech companies seem to be running large private bus systems

The Google buses, which often stop in spaces supposedly reserved for public transport, are a particular point of contention. This growing fleet of unmarked luxury coaches carries some 14,000 people on their 35-mile trip from the city to Silicon Valley and back. Since the search giant introduced the buses a decade ago, Facebook, Apple, eBay and almost 40 other companies have followed suit. Each new route quickly becomes a corridor of hip clothing stores and restaurants.

This is an interesting exercise in privatization.  For riders, it certainly would be nice to have routes custom designed to match your needs (ie exactly from your origin to your destination without changing trains or busses), something that is often an issue with public transport networks.  Als0- and this is going to sound awful but it is from many public surveys and not my own point of view - these private bus networks get around the social mixing issue that turns a lot of middle class riders off on bus systems.

This is obviously expensive but I understand why some companies do it.  As someone wrote a while back, no one in their right mind would put Silicon Valley in California today if it were not already there.  It is absurdly expensive to do business in CA and it is expensive to live there as an employee.  However, tech companies have found that  a certain good called "access to San Francisco" is quite valuable to the types of young smart employees they want to hire and can overcome these negatives.  So the bus system is a way for companies to better provide this good.  The irony of the article is that as so many tech companies are selling this good (ie access to San Francisco) they may be changing the character of San Francisco in a way that makes the good less valuable over time.

Absolute Fecklessness

I am still reading through the Detroit Free Press report on Detroit's financial history and it is really amazing.  All the stuff you expect to see is there -- over taxation, over regulation, crony gifts, huge government pay and pensions, etc.  But this was new to me, and even worse than I expected:

Gifting a billion in bonuses: Pension officials handed out about $1 billion in bonuses from the city’s two pension funds to retirees and active city workers from 1985 to 2008. That money — mostly in the form of so-called 13th checks — could have shored up the funds and possibly prevented the city from filing for bankruptcy. If that money had been saved, it would have been worth more than $1.9 billion today to the city and pension funds, by one expert’s estimate.

Outright gifts of taxpayer money to government workers, even beyond their already rich salary and pensions!  Folks on the Left from Paul Krugman to Obama are trying to portray Detroit as the innocent victim of economic and demographic exogenous forces beyond their control.  Don't let them.  The exodus from Detroit and the destruction of its economy were not random events the city had to endure, but self-inflicted wounds.

Subjunctive in English -- Are There Examples Other than "Were"?

The other day I joked that most of my memories of Spanish in high school were of trying to learn and conjugate the subjunctive, an activity for which English speakers are not well-prepared.

In fact, the only example of a unique subjunctive verb conjugation I can think of in English is "were".  For example in "if I were a rich man,..."

I am sure there must be others.  I could Google it, but does anyone know any off hand?

Update:  We already have an awesome answer in the comments.  Though I am unclear how anyone that proficient in grammar can stand to regularly read this blog.  Makes me even more self-conscious about proof-reading better, which I actually have been attempting, even if the results are not obvious.

Most Unsurprising Headline of the Year

Via the AZ Republic:

The pay gap between the richest 1 percent and the rest of America widened to a record last year.


Last year, the incomes of the top 1 percent rose 19.6 percent compared with a 1 percent increase for the remaining 99 percent.


But since the recession officially ended in June 2009, the top 1 percent have enjoyed the benefits of rising corporate profits and stock prices: 95 percent of the income gains reported since 2009 have gone to the top 1 percent.

That compares with a 45 percent share for the top 1 percent in the economic expansion of the 1990s and a 65 percent share from the expansion that followed the 2001 recession.

The Federal Reserve is pumping over a half trillion dollars of printed money into inflating a bubble in financial assets (stocks, bonds, real estate, etc).  It should be zero surprise that the rich, who disproportionately get their income and wealth from such financial assets, should benefit the most.   QE is the greatest bit of cronyism the government has yet to invent.

(yes, I understand that there are many reasons for this one-year result, including tax changes that encouraged income to be moved forward into last year and the fact it was a recovery off of a low base.  Never-the-less, despite decades of Progressive derision for "trickle down" economics, this Administration has pursue the theory that creating an asset bubble that makes the rich much richer will in the long term help the economy via the "wealth effect.")

Previewing the President's College Rankings

Today, President Obama sort-of kind-of acknowledged a problem with Federal college student lending:  Federal loans are doing nothing to improve the affordability of colleges, as colleges are just raising tuition in lockstep with increased lending, thus leaving students massively in debt for the same old degree.

His proposed solution is to somehow tie the availability of Federal funds to some type of government scoring system for colleges.  The probability that this will do anything to reign in student debt is exactly zero.  But it will potentially give the Feds another vehicle for control (similar to what Title IX has given them) of even the most mundane university policies.  Why not, for example, give high scores to universities with the restrictive and politically correct speech codes this Administration favors, thus effectively denying money to students of universities that don't have Eric Holder-sanctioned speech policies?

If you think I am exaggerating, look at the recent Washington Monthly college rankings as a prototype for the Obama scoring system.  In their system, colleges are ranked higher if they have a higher percentage of Peace Corps*** graduates, if more of their Federal work-study grant money is used for jobs at non-profits rather than for-profits**, and if their school reports more community service hours.  This latter points to another issue -- a number of schools rank really low on community service hours, effectively all tied with zero.  This is obviously a reporting issue.  The Obama plan just about guarantees that universities will start to game all these metrics -- does no one pay attention to the fraud that has been found in the law school rankings?

They also have a ranking of the schools providing the best value.  The good news, I suppose, is the school my son attends is #1.  The bad news is that my alma mater Princeton is not even on the list.  I found this odd, because while the authors explicitly laud Amherst's generous program that helps fund students through grants rather than loans, Princeton actually was one of a few schools that did this first (update:  Princeton was the first school to eliminate loans from financial aid packages of low income students, and since has eliminated loans altogether from all financial aid packages.  If you can get in, you can graduate debt-free).

It says this of Amherst:

 It chose to tap its sizable $1.6 billion endowment to provide tuition discounts so generous that the annual net cost to students with family incomes below $75,000 is only $843, less than a third of the sticker price of a year at the average community college. Another elite liberal arts college, Williams, also makes our list. But instructively, none of the other prestigious, well-endowed private colleges and universities in America—not Harvard or Yale, Swarthmore or Smith, none of them—can make that claim.

Actually, we don't know if that last sentence is true because the authors left Harvard and Yale off the list entirely.   My impression is that Princeton makes is very inexpensive for families making less than $75,000 as well, so I could not understand the claim -- perhaps even without debt the tuition charges to low-income families are still unreasonably high.  But we will never know, because apparently Princeton is not even on the list -- not because it does not direct a lot of its endowment to need-based scholarships, but because it has only 10% students on Pell grants, and the authors decided that you could not be on the list unless that number was at least 20% "to make sure they aren’t just catering to the affluent."  This just points to how quickly such a system gets politicized.  What does "catering to the affluent" have anything to do with bang for the buck?  If they really trust their methodology, they would have included these schools and if they are really just over-priced rich kids' playgrounds, that should have come through in the ranking.  Instead, the author's have explicitly invented an unrelated criteria to weed Ivy League schools out, a criteria more related to admissions requirements than to financial aid requirements and affordability and value (the ostensible bases for the rankings).

By the way, if you want to get a really good laugh, this is supposed to be a value or "bang for the buck" ranking, but they only rank the costs.  There is absolutely no ranking of "bang".  Bizarre.  It is as if any degree of any type from any institution is equally valuable.  Which, by the way, is part of the problem in the student loan bubble -- just this assumption.


** This is EXACTLY the kind of incentive that will help pay off those future college loans -- lets make sure to encourage every student to work in non-profits rather than for-profits jobs.

*** Why the Peace Corps?  Why not a myriad of other useful and productive occupations?  If you want to have a service metric, why is Peace Corps there and, say, Teach for America not?

I Have A Better Idea: Let's Just Kill It

Kevin Drum thinks the mortgage interest deduction is unfair because people with bigger mortgages get bigger deductions.  In particular, he is concerned that people with smaller deductions get no incremental benefit because these deductions are seldom larger than their default personal exemption.

But tax deductions are always going to be like this in a progressive system -- the rates are progressive and the fixed personal exemption is extremely progressive, so the combination of the two mean that tax deductions are going to preferentially help the rich more.  This reminds me of the arguments in Colorado when tax law required a tax reduction and Democrats in the state legislature complained that people who don't pay taxes would be getting no benefits from this.

He tries to posit some silly alternative tax credit system, but why bother?  Haven't we had enough of distortive tax breaks that favor a single industry and/or shift investment alarmingly into a particular pool of assets (thus increasing the risk of bubbles).  Isn't the whole notion of tax-subsidizing home ownership but not rentals inherently regressive, no matter how the deduction or credit is calculated?  Doesn't the labor market rigidity of home ownership most penalize lower income workers who get trapped in a certain geography by their home and cannot migrate for better wages, as blue collar workers have done in past recessions and recoveries?

Why wouldn't a good progressive like Drum be advocating for an elimination of the deduction altogether?  Is this one of those coke-pepsi party things, where the Republicans have taken over the issue of limiting deductions so Democrats have to reflexively defend them, even if ideologically it would make more sense for them to promote their elimination?