How did Europe come to dominate the world by 1914?

In two words, war and taxes:

Between 1492 and 1914, Europeans conquered 84 percent of the globe, establishing colonies and spreading their influence across every inhabited continent. This was not inevitable. In fact, for decades, historians, social scientists, and biologists have wondered: Why and how did Europe rise to the top, even when societies in Asia and the Middle East were far more advanced?

So far, satisfactory answers have been elusive. But this question is of the utmost importance given that Europe’s power determined everything from who ran the slave trade to who grew rich or remained mired in poverty. . . .

Mostly, it derived from the incentives that political leaders faced in Europe—incentives that drove them not just to make war, but also to spend huge sums on it. Yes, the European monarchs built palaces, but even the huge Chateau at Versailles cost King Louis XIV less than two percent of his tax revenue. The rest went to fighting wars. He and the other kings in Europe had been raised since childhood to pursue glory on the battlefield, yet they bore none of the costs involved—not even the risk of losing their thrones after a defeat. Leaders elsewhere faced radically different incentives, which kept many of them militarily weak. In China, for example, emperors were encouraged to keep taxes low and to attend to people’s livelihoods rather than to pursue the sort of military glory that obsessed European kings.

For this and a variety of other reasons, leaders outside of Europe could not match Europe’s innovations in warfare innovation. The huge sums of money showered on fighting in Europe gave military leaders the flexibility to buy new weapons and battleships and try out new tactics, fortifications, and methods of supply. In the process, they learned from their mistakes and improved their technologies. And because European countries were small and geographically close, they could easily learn from their rivals’ errors and copy their improvements. . . .

Europe’s ability to tax was no small achievement. China could not raise equivalent tax revenues, even in the nineteenth century. And countries in sub-Saharan Africa today still lack the basic capacity to tax, which keeps them from providing security and other basic public goods to their citizens.

Europe had yet another advantage as well: its entrepreneurs were free to use gunpowder technology to mount expeditions of conquest, colonization, and militarized trade. Although they usually needed official permission to launch a voyage, entrepreneurs were often encouraged by authorities eager to find riches abroad. And they had no trouble acquiring weapons or finding battle-hardened veterans to train military novices who joined their undertakings. By the seventeenth century, such private expeditions had spawned gigantic enterprises that raised huge sums on Europe’s burgeoning capital markets to finance ventures abroad, enterprises such as the Dutch East India Company, which was not only a private arm of Dutch foreign policy, but also the first business to issue tradable shares of stock.

A final difference between Europe and the rest of the world lies in political history. From 221 B.C. onward, China, more often than not, was unified in a large empire. The Chinese empire soon developed a centralized bureaucracy that drew local elites into government service and gave them a stake in the empire’s survival. The rewards of government service helped hold the empire together, and as long as the empire was strong and unified, other East Asian powers hesitated to attack it. This meant that China had little incentive to seek out new enemies or opportunities.

Western Europe, by contrast, experienced no such lasting unification after the collapse of the Roman Empire. What it endured instead were centuries of warfare by bands of warriors whose leaders resembled modern-day warlords. The incessant fighting groomed leaders who were victorious in war. The conflict also generated enduring enmities between leaders and their followers, enmities that eventually hardened into lasting political borders. It was such ill will—and not Europe’s physical geography—that kept any single leader from ever uniting Western Europe in the sort of durable empire that prevailed for centuries in China. In the long run, the winners in Western Europe were the military leaders who learned how to impose heavy taxes to fund their fighting, and as a result, Europe ended up with kings who spent pharaonic sums on warfare and who had, in the words of Machiavelli, “no object, thought, or profession but war.”

Without a single-minded focus on war and the extraordinary ability to tax, there may never have been any European empires. The wars and the taxes lavished on them gave the Europeans an enormous lead in military technology. This enabled their conquests, and allowed them to keep native populations under control without stationing large numbers of European troops abroad. Without such advantages, the Europeans might have grown rich anyway—and perhaps even industrialized early—but they would not have dominated the world in 1914.

Happy Columbus Day!

Trump's tax plan

I keep hearing that Donald Trump isn't a serious candidate, that he's a joke, that he's too egotistical and bombastic, etc.

I'm not a fan of Trump, and I don't plan to vote for him. But I don't think he's a joke, and I think the tax plan he announced today deserves serious consideration.

Oh, I'm not convinced by his statements that his plan won't increase the debt — I'm always unimpressed by politicians who argue, essentially, that their policies are so brilliant that they'll lead to so much economic growth that we won't have to worry about fiscal responsibility. That strikes me as wishful thinking.

However, I commend Trump for breaking with the Republican orthodoxy that there must be no tax increases: Trump has admitted that some rich people's taxes will go up, including his, while most people's taxes will go down.

I'm also glad to see that he's not cowed by Republican attacks on those who don't pay any net federal taxes as freeloaders or moochers; he calls for eliminating income taxes for single people earning $25,000 or less and married couples jointly earning $50,000 or less.

And here's something else I'd like to know, especially if you're someone who writes off Trump as unserious or crazy or a joke: Why isn't Trump exactly right in what he says shortly after 12:30 in this video — that we've been losing a ridiculous amount of money by maintaining bases in other countries like Germany and Saudi Arabia, and it's time to renegotiate those deals? How does it make sense for us to provide security to a variety of countries around the world without getting paid back? Why isn't the status quo crazy? Why isn't the status quo a joke?

Paul Krugman explains why Donald Trump's economic policies are better than most Republican candidates'

Krugman writes (via):

[Jeb] Bush has chosen to attack Mr. Trump as a false conservative, a proposition that is supposedly demonstrated by his deviations from current Republican economic orthodoxy: his willingness to raise taxes on the rich, his positive words about universal health care. And that tells you a lot about the dire state of the G.O.P. For the issues the Bush campaign is using to attack its unexpected nemesis are precisely the issues on which Mr. Trump happens to be right, and the Republican establishment has been proved utterly wrong.

To see what I mean, consider what was at stake in the last presidential election, and how things turned out after Mitt Romney lost.

During the campaign, Mr. Romney accused President Obama of favoring redistribution of income from the rich to the poor, and the truth is that Mr. Obama’s re-election did mean a significant move in that direction. Taxes on the top 1 percent went up substantially in 2013, both because some of the Bush tax cuts were allowed to expire and because new taxes associated with Obamacare kicked in. And Obamacare itself, which provides a lot of aid to lower-income families, went into full effect at the beginning of 2014.

Conservatives were very clear about what would happen as a result. Raising taxes on “job creators,” they insisted, would destroy incentives. And they were absolutely certain that the Affordable Care Act would be a “job killer.”

So what actually happened? As of last month, the U.S. unemployment rate, which was 7.8 percent when Mr. Obama took office, had fallen to 5.1 percent. For the record, Mr. Romney promised during the campaign that he would get unemployment down to 6 percent by the end of 2016. Also for the record, the current unemployment rate is lower than it ever got under Ronald Reagan. And the main reason unemployment has fallen so much is job growth in the private sector, which has added more than seven million workers since the end of 2012.

I’m not saying that everything is great in the U.S. economy, because it isn’t. There’s good reason to believe that we’re still a substantial distance from full employment, and while the number of jobs has grown a lot, wages haven’t. But the economy has nonetheless done far better than should have been possible if conservative orthodoxy had any truth to it. And now Mr. Trump is being accused of heresy for not accepting that failed orthodoxy?

So am I saying that Mr. Trump is better and more serious than he’s given credit for being? Not at all — he is exactly the ignorant blowhard he seems to be. It’s when it comes to his rivals that appearances can be deceiving. Some of them may come across as reasonable and thoughtful, but in reality they are anything but.

Mr. Bush, in particular, may pose as a reasonable, thoughtful type — credulous reporters even describe him as a policy wonk — but his actual economic platform, which relies on the magic of tax cuts to deliver a doubling of America’s growth rate, is pure supply-side voodoo.

And here’s what’s interesting: all indications are that Mr. Bush’s attacks on Mr. Trump are falling flat, because the Republican base doesn’t actually share the Republican establishment’s economic delusions.

The thing is, we didn’t really know that until Mr. Trump came along. The influence of big-money donors meant that nobody could make a serious play for the G.O.P. nomination without pledging allegiance to supply-side doctrine, and this allowed the establishment to imagine that ordinary voters shared its antipopulist creed. Indeed, Mr. Bush’s hapless attempt at a takedown suggests that his political team still doesn’t get it, and thinks that pointing out The Donald’s heresies will be enough to doom his campaign.

But Mr. Trump, who is self-financing, didn’t need to genuflect to the big money, and it turns out that the base doesn’t mind his heresies. This is a real revelation, which may have a lasting impact on our politics.

Warren Buffett has a better economic plan than raising the minimum wage

Buffett writes in the Wall Street Journal:

In my mind, the country’s economic policies should have two main objectives. First, we should wish, in our rich society, for every person who is willing to work to receive income that will provide him or her a decent lifestyle. Second, any plan to do that should not distort our market system, the key element required for growth and prosperity.

That second goal crumbles in the face of any plan to sizably increase the minimum wage. I may wish to have all jobs pay at least $15 an hour. But that minimum would almost certainly reduce employment in a major way, crushing many workers possessing only basic skills. Smaller increases, though obviously welcome, will still leave many hardworking Americans mired in poverty.

The better answer is a major and carefully crafted expansion of the Earned Income Tax Credit (EITC), which currently goes to millions of low-income workers. Payments to eligible workers diminish as their earnings increase. But there is no disincentive effect: A gain in wages always produces a gain in overall income. The process is simple: You file a tax return, and the government sends you a check.

In essence, the EITC rewards work and provides an incentive for workers to improve their skills. Equally important, it does not distort market forces, thereby maximizing employment.

The existing EITC needs much improvement. Fraud is a big problem; penalties for it should be stiffened. There should be widespread publicity that workers can receive free and convenient filing help. An annual payment is now the rule; monthly installments would make more sense, since they would discourage people from taking out loans while waiting for their refunds to come through. Dollar amounts should be increased, particularly for those earning the least.

Do Obama's anti-homemaker proposals make sense?

Ramesh Ponnuru says they don't:

He wants to triple the existing tax credit for child-care expenses, and create a new credit for second earners. Those proposals will help some parents and couples, but have nothing to offer families where one parent concentrates on home-based tasks. The second-earner credit is probably too small to affect couples’ decisions about work and child-care arrangements. So its main effect will be to lower the share of the tax burden paid by two-earner couples who were going to be working even without the credit.

Why do that?

There are two standard economic justifications for shifting the tax burden in this way, neither of them convincing.

One is that two-earner couples have higher costs than single-earner couples making the same income, so it's harder for them to pay the same taxes. But that seems like using the tax code to counteract the efficiency advantages of a particular way of dividing a family's labor, which doesn't make much sense. And it seems like an especially weak argument since, in the real world, single-earner couples have smaller incomes.

The second justification is that a progressive tax code, when applied to families rather than individuals, can penalize second earners. A second earner will often pay a higher tax rate than she would if she were single and making the same income, because she moves to a higher bracket when she marries a wage earner. The tax code thus discourages her from working. That's true, but it's just a special case of the way taxes discourage work, and not one that seems especially unjust or destructive. Marriage is (among other things) an economic partnership, and this feature of the tax code reflects that it involves pooling resources.

If the second-earner credit ignores that feature of marriage, Obama's other proposal ignores how little Americans like commercial child care. Surveys suggest that most parents prefer that small children be primarily cared for by a parent at home, and the Census Bureau reports that less than a quarter of them are in organized care facilities.

Given these preferences, it would make more sense to enlarge the child tax credit -- not the child-care credit -- and let parents use it as they see fit rather than requiring them to use the commercial day care most of them try to avoid. Some of them, it's true, might use the extra money to let one parent scale back from full-time to part-time work, or from part-time work to leaving the labor force.

Who supports a carbon tax?

A piece in the New Yorker makes the case for a tax on carbon emissions.

That's not very surprising. What's more surprising is that, as the article points out, over 100 big corporations — including ExxonMobil and Shell — have expressed support it. In contrast, the White House spokesperson, Jay Carney, recently said: "We would never propose a carbon tax, and have no intention of proposing one."

Warren Buffett's weird editorial on capital gains taxes

Normally, you'd expect a columnist who's claiming that a tax isn't going to have any deterrent effect to have to make an argument for why not. But when Warren Buffett writes an editorial for the New York Times, it seems to be good enough for him to say, in effect: Trust me, I'm rich!

Buffett wrote a similar NYT editorial last year.

Thomas Sowell has made the case for keeping capital gains taxes much lower than income taxes. Even the left-leaning Matthew Yglesias has supported that position, saying:

[T]his is definitely an issue where the conservative position is in line with what most experts think is the right course, and Democrats are outside the mainstream.

Maybe Sowell and Yglesias are wrong. But if they're wrong, there must be some reason why, and the reason isn't that Warren Buffett has more money than them.

Should we be so trusting of the super-rich in making claims about taxes? Or could it be that a multibillionaire like Buffett, who has a lifetime guarantee of  having more wealth than he could possibly spend, might be out of touch with the kinds of incentive effects that apply to most people?

How to expand the government

Cut taxes.

The first debate of the 2012 general election

I'll be live-blogging it here tonight.

As always, any quotes I write down will be done without a transcript or pause/rewind button. So they might not be verbatim, but I'll try to be accurate.

For more live-blogging, check out Althouse (my mom), TalkingPointsMemo, and Democracy in America.

[Added later: Here's the transcript, and here's video of the whole debate:]



9:06 - President Obama criticizes the "top-down policies that got us into this mess." Is Obama trying to pitch himself as the candidate of bottom-up policies? That's hard to believe.

9:07 - Mitt Romney brushes off Obama's charges that he's going to take a top-down approach or "cut taxes for the rich."

9:08 - Romney says that Obama believes in something that doesn't work: "trickle-down government."

9:09 - Moderator Jim Lehrer asks Obama to expand on the idea of trickle-down government, and Obama responds by explaining his education policy of "race to the top." The debate has been very vertical so far.

9:10 - Obama makes the unpopular admission that the government needs to both reduce spending and increase revenues in order to control the deficit.

9:11 - Romney to Obama: "I'm not going to reduce the share of taxes paid by high-income people. High-income people are doing just fine."

9:12 - Romney describes the economic slump as an "economy tax" on the middle class.

9:14 - Romney makes the implausible promise to make "no tax cut that adds to the deficit."

9:16 - Obama says that even if you cut all deductions that benefit the wealthy, it wouldn't make up for the shortfall in revenue that would result from Romney's tax cuts for them. Is Obama assuming that all these enormous changes in the tax code would have no effect on behavior?

9:22 - Romney's explanation for how his math adds up is that he would cut taxes for small businesses, which would create jobs.

9:23 - Obama says that Romney is making "the same sales pitch [on taxes] that was made in 2001 and 2003." Obama equates his own approach with Bill Clinton's. So, "we've got some data on which approach is likely to create jobs for middle-class Americans."

9:24 - Romney goes on at unnecessary length about the debating rules: "He got the first answer, so I have the last word on this topic," etc.

9:26 - Romney: "The amount of debt we're adding, at a trillion dollars a year, is simply not moral."

9:27 - Romney promises that he'd go through all government programs, figure out which ones don't work, and stop funding them. This sounds uncannily similar to a promise Obama made in one of the 2008 general-election debates. (See my live-blog from October 7, 2008 — coincidentally, it's in the update from the exact same time, 9:27.)

9:31 - Obama attacks Romney for raising his hand in a primary debate when the Republican candidates were asked if they'd turn down an offer of a 10-to-1 ratio of spending cuts and tax increases.

(I stopped live-blogging here for about 20 minutes because the ABC News and YouTube feeds were too choppy. The C-SPAN feed works much better.)

9:52 - Romney says that Dodd-Frank is "the biggest kiss given to New York banks I've ever seen." He criticizes the "unintended consequences" of financial regulation, but says that some financial regulation is essential.

9:53 - Obama seems at a loss for words for an uncomfortably long time before he goes into his explanation of the causes of the financial crash.

9:54 - Obama: If you think the problem is that we had too much regulation of Wall Street, then Romney is your candidate. Romney rejects this: "It's not that Dodd-Frank was always wrong with too much regulation. Sometimes it doesn't give clear regulation."

9:56 - Romney is asked why he wants to repeal Obama's health-care law. He cites the Congressional Budget Office saying that Obamacare will make health insurance cost $2,500 more per person. Also, "it puts in place an unelected board that will tell people, ultimately, what kinds of treatments they can have." He wants you to think "death panels" without him having to say it.

9:59 - Obama says that Obamacare will definitely let you keep your health insurance. (This calls for a fact-check!) It will just mean that health-insurance companies "can't jerk you around." He admits that "Governor Romney did a good thing" by enacting Romneycare.

10:02 - Romney says that Romneycare is different from Obamacare because the latter will cause people to lose their health insurance. He also reels off a dizzying array of other distinctions, which I doubt many viewers will be following.

10:03 - Obama mocks Romney's references to the "unelected board." Obama characterizes this as making "smart choices" and using "best practices"; the alternative is "to let businesses decide how long they can afford to keep paying premiums until they just give up."

10:05 - Obama says Romney is right that health-care premiums have been going up for the past 2 years — but they've been going up more slowly than in the past 50 years.

10:06 - What would Romney enact in place of Obamacare? He won't describe the whole thing, because the description would be too long. But his plan would include a rule against barring people with pre-existing conditions. And he'd let young people stay on their parents' plans, though he adds that this could happen purely through the free market.

10:10 - Obama says that Romney "says he's going to replace Obamacare" (yes, he did call it "Obamacare"), but he won't say what he's going to replace it with. "Is the reason he's keeping his policies secret, because they're too good?"

10:11 - Romney responds that he's holding back from giving more specifics because he's doing what Ronald Reagan did: laying out "principles" such as creating incentives for economic growth, broadening the tax base, and cutting taxes. Oddly, he adds a compliment to Obama for sharing some of Reagan's economic principles.

10:14 - Obama: "The genius of America is free enterprise." However, there are "things we do better together." He then segues back to his education policy: "Government can help. It can't do it all."

10:16 - Romney responds to Obama: "I reject the idea that I don't believe in great teachers or more teachers. Every state can make that decision on its own."

10:16 - Romney quotes various phrases from the Declaration of Independence, including "the pursuit of happiness." He seems to say that this means that the government has a responsibility to provide for those who are unable to provide for themselves.

10:18 - Romney says that federal funding should "follow the child" — that is, let the child and their parents decide where to go to school.

10:20 - Obama says that Romney hasn't been clear about his education proposals, but he would cut the education budget by 20%.

10:22 - Romney to Obama: "As president, you're entitled to your own house and your own airplane, but not your own facts. I'm not going to cut education funding."

10:24 - Lehrer says they're short on time for the remaining issues, but he's not going to claim he's done a good job of moderating. Obama: "Jim, you've done a great job!" Lehrer: "Oh, well, no . . ."

10:26 - Romney lists various things he's going to do on "day 1" as president. Obama points out that Romney is going to have "a busy first day," since he's also promised to repeal Obamacare on day 1.

10:30 - Obama: "Four years ago, I said I wasn't a perfect man and I wouldn't be a perfect president, and that's a promise Governor Romney probably thinks I've kept."

That's all. Check in here again for the vice-presidential debate next week.

UPDATE: About an hour into the debate, Josh Marshall of TalkingPointsMemo, who of course is favorable to Obama, said:

My read so far is that if you go by energy and tossing out lots of data points, then Romney is running circles around the president. Obama has only on a few occasions really pressed a point hard. Whether that means he’s ‘winning’ I don’t know. But energy level, Romney all the way. But I think there are a lot of traps that Obama’s put out there for Romney. Romney really pressed his insistence that he just isn’t going to do what he says his plan is going to do. I think those statements – and the statement about vouchers – might be unpacked badly for him over the next few days.

The 7 bloggers at the Economist's blog Democracy in America seem to be unanimous in saying that Romney won. "W.W." (Will Wilkinson) says:

Romney won decisively. Obama clearly approached the debate with a mainly defensive strategy, hoping to come away without having done anything to rock his very comfortable boat. But the boat did rock. Obama was flummoxed by Romney's superior preparation, intensity, and execution, and tonight's truly dismal performance from the president has put the sustainability of his lead in question, if not actually in peril.

Another blogger at the Economist, "T.N.," says:

Obama seemed to sleepwalk through much of the debate - and the fact that so many potential attack lines were not exploited suggests that . . . this might be a deliberate tactic - to bore his way to victory over the next month.

Andrew Sullivan says:

Look: you know how much I love the guy, and you know how much of a high information viewer I am, and I can see the logic of some of Obama's meandering, weak, professorial arguments. But this was a disaster for the president for the key people he needs to reach, and his effete, wonkish lectures may have jolted a lot of independents into giving Romney a second look.

Obama looked tired, even bored; he kept looking down; he had no crisp statements of passion or argument; he wasn't there. He was entirely defensive, which may have been the strategy. But it was the wrong strategy. At the wrong moment.

The person with authority on that stage was Romney - offered it by one of the lamest moderators ever, and seized with relish. This was Romney the salesman. And my gut tells me he sold a few voters on a change tonight. It's beyond depressing. But it's true.

There are two more debates left. I have experienced many times the feeling that Obama just isn't in it, that he's on the ropes and not fighting back, and then he pulls it out. He got a little better over time tonight. But he pulled every punch. Maybe the next two will undo some of the damage. But I have to say I think it was extensive.

David Brooks analyzes Mitt Romney's hidden-camera comments

Brooks writes an insightful column on Romney's infamous comments:

Romney, who criticizes President Obama for dividing the nation, divided the nation into two groups: the makers and the moochers. Forty-seven percent of the country, he said, are people “who are dependent upon government, who believe they are victims, who believe the government has a responsibility to take care of them, who believe they are entitled to health care, to food, to housing, to you name it.”

This comment suggests a few things. First, it suggests that he really doesn’t know much about the country he inhabits. Who are these freeloaders? Is it the Iraq war veteran who goes to the V.A.? Is it the student getting a loan to go to college? Is it the retiree on Social Security or Medicare?

It suggests that Romney doesn’t know much about the culture of America. Yes, the entitlement state has expanded, but America remains one of the hardest-working nations on earth. Americans work longer hours than just about anyone else. Americans believe in work more than almost any other people. Ninety-two percent say that hard work is the key to success, according to a 2009 Pew Research Survey.

It says that Romney doesn’t know much about the political culture. Americans haven’t become childlike worshipers of big government. On the contrary, trust in government has declined. The number of people who think government spending promotes social mobility has fallen.

The people who receive the disproportionate share of government spending are not big-government lovers. They are Republicans. They are senior citizens. They are white men with high school degrees. As Bill Galston of the Brookings Institution has noted, the people who have benefited from the entitlements explosion are middle-class workers, more so than the dependent poor. . . .

The final thing the comment suggests is that Romney knows nothing about ambition and motivation. The formula he sketches is this: People who are forced to make it on their own have drive. People who receive benefits have dependency.

But, of course, no middle-class parent acts as if this is true. Middle-class parents don’t deprive their children of benefits so they can learn to struggle on their own. They shower benefits on their children to give them more opportunities — so they can play sports, go on foreign trips and develop more skills.

I agree with most of that. But Brooks's line of reasoning about parents and children, though clever, is also potentially dangerous. Adults aren't children. And the government isn't — or, shouldn't be — our parents.

By the way, who are the 47% of people Romney referred to as not paying income taxes? Here are a few charts with the answer. As you can see from that link, Romney is about right if you're looking at federal income taxes paid in 2011: 46.4% of households didn't pay them. But most of those households (28.3%) paid payroll taxes instead. Among the remaining 18.1%, most of them (10.3% of the total) were elderly, and almost all of the younger ones (6.9%) made less than $20,000 a year. It's fine for Romney and others to make the case that more of them should pay higher taxes. But let's be clear about who we're talking about.

Do tax increases discourage the wealthy from working hard?

Judge Richard Posner (who's considered "conservative") has this to say on the subject:

Increasing income taxes can . . . reduce the amount of work. But when the issue is increasing marginal income tax rates, the likelihood of a significant effect on work depends critically not only on the amount of the increase but also on where the margin is set. The Obama Administration proposes by allowing some of the Bush tax cuts to expire on schedule to increase the marginal income tax rate of persons whose taxable income exceeds $250,000 a year from 35 to 39.6 percent. . . . The effect on most of these taxpayers would be small. Suppose a person earning $300,000 in taxable income pays $75,000 in taxes currently. If his marginal rate (the rate for taxable income above $250,000) rises from 35 to 39.6 percent (for simplicity I’ll round this up to 40 percent), then his total income tax bill will rise from $75,000 to $77,500 (because on the last $50,000 of his income he will pay an extra 5 percent in tax). Will this increase in his total federal income tax bill, of 3.3 percent, cause him to work less? I would like to see evidence that it would.

Because of tax avoidance opportunities, it seems that very few people pay more than about a quarter of their income in federal income tax. Suppose someone has an income of $10 million on which he currently pays $2.5 million in income tax. The Administration’s tax increase would raise his income tax by $487,500 ([$10 million - $250,000] x .05), or slightly less than 20 percent. Would that affect how hard he works? I’m skeptical.

Income tax on earned income . . . does increase the cost of work relative to leisure, which is the basis for concern that increasing income tax rates, especially marginal rates, will cause a shift from work to leisure (and . . . to nonpecuniary work such as household production). But there is another effect: by lowering disposable income, an increase in income tax may cause a person to work harder in order to maintain his previous standard of living. The net effect on income of a higher tax is therefore uncertain. . . .

Americans are accustomed to working hard and to achieving and maintaining a high level of expenditure on consumer goods. In addition, people who earn high incomes tend to be highly competitive and to rate themselves by their income relative to the income of peers. Because of the absence of an aristocracy and the presence of a generally philistine attitude toward culture, money is the key index to prestige and social standing in the United States and, for many Americans, to a feeling of self-worth. These features of American society lead to me to be skeptical in general about the effect on work and therefore income of increasing marginal income tax rates to the levels contempated by the Administration.

A Berkeley economics professor, Owen Zidar, has studied the macroeconomic effects of tax changes on different income groups by looking at decades of data on U.S. federal and state taxes (respectively, from 1945-2010 and 1980-2011). (Here's the abstract with a link to download the whole paper.) He concludes:

Do tax cuts that go to high income taxpayers generate more output and employment growth than similarly sized tax cuts for low and moderate income taxpayers? . . .

If tax cuts for high-income earners generate substantial economic activity and job creation, then we should expect to see three things in the data. First, employment growth should tend to be higher in the years following exogenous tax cuts for the rich. Second, places with a higher share of rich people should grow faster following national tax cuts for the rich (since these areas receive more tax cuts for rich people in dollar per capita terms). Similarly, growth should be lower following tax increases on the rich, especially in places where many rich people live. None of these predictions are born out out in the data.

I find that the relationship between upper income tax changes and growth is negligible in magnitude and substantially weaker than equivalently sized tax changes for the bottom 90%. The point estimates suggest that almost all of the stimulative effect of exogenous tax cuts is due to tax cuts for the bottom 90%. Differential consumption responses help explain why a dollar of tax cuts for the top 10% produces less growth than those for the bottom 90%. Investment responses are also stronger following tax cuts for the bottom 90%, suggesting that the effects of additional economic growth tend to exceed the effects from income changes among those who are more likely to save. Overall, tax cuts for the bottom 90% tend to result in more output, employment, consumption and investment growth than equivalently sized tax cuts for the top 10%.

(You might object that this kind of study is skewed by the fact that taxes are sometimes raised or cut in response to specific economic conditions. But Professor Zidar tried to exclude those kinds of tax changes from his study.)

3 responses to Obama's "You didn't build that"

Charles Krauthammer:

The ultimate Obama fallacy . . . is the conceit that belief in the value of infrastructure — and willingness to invest in its creation and maintenance — is what divides liberals from conservatives.

. . . Infrastructure is not a liberal idea, nor is it particularly new. The Via Appia was built 2,300 years ago. The Romans built aqueducts, too. And sewers. Since forever, infrastructure has been consensually understood to be a core function of government.

The argument between left and right is about what you do beyond infrastructure.

Will Wilkinson:

Mr Obama's observation that it takes a village to make a fortune is in one respect irrelevant and in another offensive. It is irrelevant because the class of people Mr Obama wants to "give back" has already paid most of the tab, and continues to pay most of the tab, for the tax-financed public goods upon which they, and the rest of us, so crucially depend. At the federal level, the top 10% percent of the distribution paid over 70% of income taxes in 2009 . . . . Mr Obama's in-it-together point is mildly offensive in context because it is used to imply that top-earners who resist paying an even larger portion of America's tab do so only because they are in the grip of an absurd myth of self-reliance.

Together with a bit of simple democratic mathematics, the facts about the portion of tax revenue contributed by the rich plausibly suggest that they pay more than their fair share for the infrastructure of capitalism. The rich have money, which can buy political influence. But the middle class have votes, which in a democracy is influence. So it's not surprising that the public goods upon which the middle class equally depends are financed disproportionately by the wealthy. Of course, no one ever got elected by identifying middle-income voters as the free-riding class. Asking the minority who already finances rather more than most government expenditure to "give something back", as if it were currently skating by unfairly on the more open-handed spirit of the less privileged, is plain, old-fashioned demagoguery. . . .

Anyway, it's not the infrastructure of American capitalism that's busting the budget, is it? Our fiscal strain is largely a matter of buying health-care for old people. The health and longevity of America's elderly is an admirable and humane goal, but it's not part of the vital infrastructure of business.

None of this is to say that the top tax rate should not rise. There may be other, better, reasons to stick it to the rich. . . . But Mr Obama's notion that the rich get more out of our common institutions than they put in is questionable, to say the least. And his suggestion that opposition to higher top income-tax rates could only be based on by-the-bootstraps social atomism is a silly bit of bad faith.

(I made a similar point in response to Elizabeth Warren.)

Ann Althouse (my mom):

You could say if you listen sympathetically to Obama saying the quote, you could understand the quote in a way that's not ridiculous and disturbingly left-wing. And if you get that far, then Romney's use of it could be understood as "a false attack." . . . But why would Romney not use that quote for all it's worth? Since when does decency/integrity/honesty require that a politician interpret his opponent's words in a sympathetic light and give him the benefit of the doubt? The quote is a gift to Romney and he's accepted it.

It's like Romney saying "Corporations are people." That's a gift to Obama's people and they are using it. They don't feel any ethical compulsion to stop and say we understand what he really meant. I mean, I love the way the new Obama ad — trying to get us to understand — includes this additional part of the context: "We succeed because of our individual initiative, but also because we do things together."

When I heard that the first time, I said: Yeah, corporations are people. We do things together. Sometimes when people succeed doing things together, they form a corporation as a way of working together. But you'll never hear Obama say that. He will use the "Corporations are people" line for full mockery effect, never admitting that he knows why it makes sense and why it really isn't anything we disagree about.

Does it make sense for conservatives to complain about almost half of Americans paying no federal income taxes?

Nope, says National Review's Ramesh Ponnuru.

One especially clever point by Ponnuru, in response to the argument often made by conservatives that "the more people fall off the income-tax rolls, the more will support federal activism":

The story . . . relies on implausible psychological assumptions. It assumes that people who pay payroll taxes but not income taxes make a sharp distinction between the two. But what if they, or many of them, simply think that they have paid taxes? It assumes, further, that immediate circumstances matter more than long-term ones. When conservatives argue for tax cuts for high-income voters, or against tax increases for them, we often point out that some people who are “rich” today will not be in ten years, and vice versa. We argue, further, that high taxes reduce the incentive to work, save, and invest, which presupposes that people can anticipate the taxes they will pay if they gain income. But if they can anticipate future taxes, then the fact that they do not happen to pay income taxes at the moment should not matter.

That point has special relevance for parents who are paying no taxes because of the child tax credit. That credit will not be available to them when their children have become adults. Parents are almost by definition more oriented to the long term, on average, than other voters. They ought to be able to see that their taxes are going to go up when their children grow up, and that if they vote for big government now they will have to pay the bill later. . . .

To seek to raise taxes on poor and middle-class people would be a terrible mistake. The idea is bound to be unpopular. And it would alter the character of conservatism for the worse . . . [by] becom[ing] a creed openly focused on helping one group at the expense of another, a kind of mirror image of egalitarian liberalism.

Which American city overpays the most in federal taxes, relative to the federal benefits it receives?

San Francisco. Another one of the most overpaying cities is New York City.

Rick Perry's "flat tax"

It isn't flat.

Perry says he's against progressive taxation and wants a tax code "that you can put on a postcard." But his own plan doesn't eliminate the federal income tax rates. He keeps those rates but adds an alternative flat tax, which you're apparently free to choose or reject. So he seems to want to complicate the federal income tax. You might still be able to write his plan on a postcard, by writing out the 6 tax brackets plus an alternative flat tax. On the other hand, that means the progressive tax could also fit on a postcard.

There's no significant difference between Perry's plan and the current income tax as far as simplicity or length. The real difference is that, as the first link explains, Perry's plan would be a huge tax cut for the rich, which would decrease revenue, which would increase the deficit.

Perry says that reducing tax revenue would be a good thing, since then we'll need to reduce federal spending. "All of these tax cuts will be meaningless if we do not control federal spending." So he seems to subscribe to the "starve the beast" theory. Well, that theory has been tried, and it doesn't work.

Anderson Cooper's "47 percent" tax lie in the debate

In last night's debate, Anderson Cooper asked this question:

Congresswoman Bachmann, you said in the last debate that everyone should pay something. Does that mean that you would raise taxes on the 47 percent of Americans who currently don’t pay taxes?

Greg Sargent says:

I don’t really consider it part of my job here to think about where candidates messed up, especially since a lot of their factually incorrect statements are just playing to their audience, and you sort of have to expect a lot of that. But Anderson Cooper, the CNN moderator, has no excuse: his claim that 47% of American pay no taxes was inexcusable. Just terrible. The correct stat is that 47% of US households don’t pay federal income taxes, which is very different. It’s bad when politicians get basic factual stuff wrong; it’s terrible when CNN does. To me at least, the debate had a clear loser, and it was Anderson Cooper and CNN for that question.

Live-blogging CNN's Las Vegas Republican presidential debate

I'll be live-blogging the debate starting soon. There will also be live-blogging on TalkingPointsMemo, National Review, and the New York Times.

Feel free to post any comments about the debate (or the election) in the comments.

[ADDED: Here's the transcript, and here's the video:]



7:58 - This seems to be online only: we see someone warming up the audience, encouraging them to applaud as wildly as possible. He introduces Anderson Cooper (who I walked by on the street the other day). Cooper tells the audience we're going to start with the National Anthem, which he'll sing very quietly because he has a terrible voice. Good, this will give me time to make a salad before the actual debate starts.

8:02 - The opening sequence has majestic music (to conjure up the West), and an announcer gives us a basic run-down of who has what at stake. After summing up Mitt Romney (holding steady in the top tier), Rick Perry ("trying to get back on track after a meteoric rise"), and Herman Cain (surging), the announcer says that Newt Gingrich, Michele Bachmann and Ron Paul are still trying to break through, while Rick Santorum is described as trying to "beat the odds." Santorum fans (if they exist) had to cringe that he was placed in a lower tier than everyone else including Ron Paul.

8:07 - An aggressively masculine rendition of the Star Spangled Banner.

8:08 - Fortunately, this is the second debate in a row with no bells to signal when a candidate's time is up.

8:09 - Everyone is giving an opening statement. Santorum includes a sweet message to his daughter, who had surgery today and is doing fine.

8:10 - In Cain's opening statement, he says he's "a businessman, which means I solve problems for a living." Romney goes next and awkwardly echoes Cain's intro.

8:10 - In his opening statement, Perry forcefully says he's "an authentic conservative, not a conservative of convenience." A heavy-handed swipe at Romney.

As always, I'm writing down quotes on the fly, so they may not be verbatim.

8:14 - Santorum: "Herman's well-meaning." But 84% of Americans will pay more in taxes under Cain's 9/9/9 plan.

8:16 - Cain denies that he's proposing a value added tax. Bachmann insists that he is proposing a VAT. (I recently blogged about this.) The VAT just tricks people into thinking businesses, instead of government, are making them pay more.

8:17 - Perry calls Cain "brother" twice in his answer on why the 9/9/9 plan won't work. [Here's the video, which also shows that he uses a different word for Romney:]



8:19 - Paul makes a crucial, surprisingly overlooked, point: any time you increase spending, you're effectively raising taxes (I would add: especially as long as we're in debt). The taxes will have to go up sooner or later. The fact that we don't experience the tax increases right away doesn't change this fact.

8:21 - So far it's almost all been about 9/9/9. There's a lively exchange between Cain and Romney. Cain says Romney and Perry are "mixing apples and oranges" by equating his proposed federal sales tax with the current state sales taxes. Romney retorts: "I'll have a bushel of apples and oranges, because I'll be paying both taxes."

8:24 - Bachmann says "every American should pay something" in taxes. Well that's good, because that's already true.

8:25 - Perry says he's finally released his economic plan. His plan is to extract our own energy, which would "create 1.2 million jobs." How long a period of time do you think he's referring to? A quarter? A year? Nope. 7 years.

8:29 - Santorum uses his favorite strategy of interrupting another candidate, and Romney responds very sharply, repeatedly saying: "Rick, you've had your chance — let me speak." That might be the most heated moment Romney has had in any of these debates. Santorum eventually announces that Romney's time is up before he's gotten a chance to say one sentence! The audience boos.

8:33 - Romney gets Gingrich to admit that Romney got the idea for his health-care plan's individual mandate from Gingrich and the Heritage Foundation.

8:42 - Perry says "Mitt loses all standing" on illegal immigration because Romney hired an illegal immigrant and knew about it for a year. Once Romney starts answering, Perry uses an uncannily similar strategy to Santorum's, jabbering over Romney for the whole time he's talking. Romney (who's right next to Perry) puts his hand on Perry's shoulder and leaves it there for a long time. Romney: "You have a problem with allowing someone to finish speaking. And I'd suggest that if you want to be President of the United States, you ought to let both people speak." Have Perry and Santorum privately agreed to the same line of attack against Romney — talking over him throughout his whole time — or did Perry spontaneously decide to emulate Santorum? Either way, Perry and Santorum are using a cowardly tactic and creating the impression that they're afraid of letting Americans hear the whole debate.

8:46 - Anderson Cooper asks Cain why he said he supported an electrified fence along the southern border, then said it was a joke, then said he stood by the statement and just didn't want to offend anyone! Cain starts out saying he's finally going to be serious, but he doesn't clarify whether he still supports an electrified fence.

8:52 - I just noticed this is the first debate without Jon Huntsman. [ADDED: He's boycotting Nevada. That'll do him a lot of good.]

8:52 - Perry brings back his attack against Romney for supposedly hiring illegal immigrants. The audience boos very loudly for a long time. Romney says: "We've been down that road sufficiently, and it sounds like the audience agrees with me." Once Romney says that, the audience immediately switches to cheering. That was Perry's big attempt to offset the charges that he himself is soft on illegal immigration, and the attempt failed miserably.

9:01 - I'm adding the "free speech" tag to this post, since the candidates seem to disagree on whether they should all get a chance to speak.

9:11 - Cain stands by his past statement about Occupy Wall Street: that if you're not rich, blame yourself. Ron Paul: "Cain is blaming the victims."

9:21 - Santorum makes a smart statement on the relevance of religion in a presidential race. The candidate's faith has to do with their values, and that's relevant for voters to consider. In contrast, whether the candidate is right or wrong about "the road to salvation" shouldn't be part of the political arena.

9:22 - Gingrich tries to outdo Santorum by saying that the idea that we were "created by a loving God" defines the boundaries of . . . what? (I'm having trouble paraphrasing him because I found this so incoherent.)

9:23 - Perry has been pausing a lot throughout the debate.

9:33 - Paul: "We have enough weapons to blow up the world 20, 25 times."

9:37 - Paul would "cut all foreign aid," which is "taking money from poor people in this country and giving it to rich people in poor countries." He emphasizes that this includes Israel.

9:41 - Gingrich, answering a question by Paul, says that the Iranian "arms for hostages" deal in the '80s was "a terrible mistake."

9:46 - Santorum says Romney in Massachusetts "ran as a liberal, to the left of Ted Kennedy." Romney laughs on cue.

9:48 - Romney: 40% of the jobs created in the last several years in Texas have gone to illegal immigrants. Perry says this is wrong, and adds: "You failed as the governor of Massachusetts." Romney responds that his unemployment rate in Massachusetts was lower than Perry's in Texas during the same time period.

9:49 - Romney: We need "someone who's created jobs, not just watched them being created by others."

9:50 - Cooper asks Cain a dumb question: Should either Romney or Perry be President? "No, I should be President!"

That's all. Now, here's the moment this debate will be remembered for:



Jonah Goldberg says:

I don’t think anyone left the debate more likable than they were when they went in, with the possible exception of Newt.

Maybe he was reading Jason (the Commenter)'s Twitter feed:

My scoring of the debates: Cain -1, Romney -2, Perry -5, Bachmann -1, Santorum -2, Newt (my new favorite)

Goldberg elaborates:

I thought Perry had his best performance so far, but it was awfully shaky at times and he struck me as unlikable at times. If this had been his first debate, he might still be the frontrunner, albeit with a lot of chatter about how he needs to get better.

Romney still won the debate but I think he finally got bloodied on RomneyCare in a way he hadn’t in the past. He also looked angry and flustered for the first time ever. It might humanize him for some people. Or it might make him look weak.

Cain wilted under the pressure, but didn’t fold. He needs to learn how to talk about 9-9-9 in a granular way without asserting ignorance, laziness or dishonesty on the part of its critics. He remains a mess on foreign policy.

Santorum was the winner on points in almost all of his exchanges but he simply cannot stop sounding whiney, angry or aggrieved. . . . [H]is tone is so unpresidential you want him to stop talking even when he’s winning.

Bachmann’s simply a diminished candidate who thinks saying Obama is a one-term president is an argument for her.

All in all, an exhausting debate.

Is Herman Cain's 9/9/9 tax plan really a 9/18 plan?

According to an article on the American Enterprise Institute's site:

A [value added tax (VAT)] and a retail sales tax are conceptually equivalent consumption taxes, apart from administrative and compliance issues. The [9/9/9] plan is therefore better described as featuring a 9 percent income tax and an 18 percent consumption tax.

That assumes that when Cain says he'll have a "9% business tax," he really means a VAT. I don't know if that's true. The article says it's been "confirmed by the economic analysis circulated by Cain's campaign," but that's pretty vague.

Cain's website says this tax will be on a business's "[g]ross income less all purchases from other U.S. located businesses, all capital investment, and net exports." The Wikipedia entry for "gross receipts tax" (a.k.a. "gross excise tax") says:

A gross receipts tax is similar to a sales tax, but it is levied on the seller of goods or services rather than the consumer.

In the last debate, Cain said his 9/9/9 plan is "simple, transparent, efficient, fair, and neutral." Many people have noted that it's hardly "efficient," "fair," or "neutral," but I'm not even convinced that it's "simple" or "transparent."

UPDATE: The Economist has an editorial entitled "Dial 9-9-9 for nonsense," which says:

Mr Cain touts the simplicity of the 9-9-9 plan, but it is anything but simple. Even after reading about it on Mr Cain's campaign site, I'm still not sure I understand it. I thought I knew that the plan proposed 9% income, sales, and corporate tax rates. But the corporate tax is not a simple reduction in the corporate tax rate, as I had thought, but a value-added-tax on "Gross income less all purchases from other U.S. located businesses, all capital investment, and net exports."

The Editors of National Review have also come out against the 9/9/9 plan, saying that the corporate tax is really a VAT.

Still trying to make sense of the Elizabeth Warren quote about successful businesses and taxes

I've already blogged about how I don't see how the phenomenally popular quote by Elizabeth Warren about business, government, and taxes makes sense.

If you're not familiar with the quote, I recommend reading it in my older blog post before reading the rest of this post. The gist is that since a successful businessperson was only able to achieve all their success thanks to government services, they should "pay forward" — that is, pay taxes in the future.

To be clear, I do agree that businesses and the rich should pay taxes. I even agree that the rich should pay a higher proportion of their income in taxes than other people. But I take issue with the idea that by observing that the rich have benefited from government services, you've somehow made an argument for left/liberal economic policies, as opposed to any other economic policies — centrist, conservative, libertarian, whatever.

Along the same lines, Alex Knepper says:

Taxes must exist for something, of course — and it seems that the best examples of successful government programs that Warren can come up with are the left’s typical trifecta of examples — schools, roads, and law enforcement. Again for the sake of argument, let’s agree with her that these are shining examples of money well-spent — and that because of this, they merit even more spending. Her point still goes nowhere: these projects don’t actually cost all that much money. The majority of federal money (and we will consider federal spending here, since Warren is running to be a senator) is spent on entitlement programs, national defense, homeland security, and health care. Education and infrastructure don’t account for a lot. If schools and infrastructure are what Warren thinks that businessmen have to be grateful for, then they still are left with many legitimate gripes about their money being misspent.

But let's look at two liberal editorials that endorse Warren's statement at length, and see if they shed any light on this.

First, the Editors of the New Republic have a piece called a "moral defense" of taxes. TNR writes:

Nobody questions whether society can require people to serve on a jury or, in times of war, to enlist in the military. So why do we question whether society can require people to pay for the government whose services, and protection, they enjoy?

Before I go into the merits of TNR's editorial, I have to point out that the Editors are making a statement that's simply false. The military draft is wildly unpopular. It hasn't been used in America since the Vietnam War, when it was considered an outrage. The draft is so unpopular that even a staunch conservative like Jonah Goldberg says (as I've blogged):

I have a problem with compulsory military service if compulsory military service isn't needed at a time of war. . . . You know, the draft is a bad thing. . . . The draft is . . . an incredible . . . it is very comparable to slavery. And in some ways, it's worse than slavery, insofar as you're forcing people to kill other people and be killed. Now, it's an evil, but it's a necessary evil sometimes.

By contrast, almost no one opposes taxation itself. Michele Bachmann had to admit as much in the last presidential debate, even after making this forceful statement:

You should get to keep every dollar that you earn. That's your money; that's not the government's money. That's the whole point. Barack Obama seems to think that when we earn money, it belongs to him and we're lucky just to keep a little bit of it. I don't think that at all. I think when people make money, it's their money.

After all that, she gave this obligatory clarification:

Obviously, we have to give money back to the government so that we can run the government.

In other words, even someone who comes across as vehemently anti-tax has to concede that we need to have some taxes in order to keep the government running (with the negligible exception of anarchists).

The basic services Warren was describing (roads, police, courts to enforce contracts, etc.) require very little taxation relative to the status quo. So, even if we only had taxation necessary to provide all those services, almost no one would be complaining that taxes are too high. (Even fairly extreme libertarians want government to be small, not nonexistent.) By contrast, most people find military conscription disturbing and abhorrent — only to be used in dire circumstances.

Onto the merits of TNR's editorial. The Editors say:

The moral case for taxation rests on two separate, but related, principles. The first is distributional. History teaches us that capitalism is an excellent economic system for generating wealth. But history also teaches us that capitalism will create losers as well as winners, often because of forces beyond any individual’s control. . . . [P]overty, like affluence, becomes its own sort of inheritance.

A civilized society recognizes this problem and vows to mitigate it. If capitalism does not offer everybody at least some realistic hope of upward mobility, it cannot survive. Here in the United States, a part of our solution has been to enact government programs that offer the needy minimal allotments of sustenance (food stamps) and shelter (housing choice vouchers), that provide the less affluent with cash (Temporary Assistance for Needy Families) and college tuition (Pell Grants), and that guarantee all citizens pensions (Social Security) and health insurance (Medicare, Medicaid, and the Affordable Care Act). These programs cost money. And the money has to come from somewhere.

The second reason we need taxes isn’t about the least fortunate; it’s about public goods. You’ll frequently hear conservatives argue that taking money from people, particularly successful people, is unfair because they, not the government, earned that money. But that’s not quite right, for reasons Warren explained very well in her monologue. Behind every successful individual is a set of public investments that past generations made. Could Bill Gates have made his fortune without government-financed education and technology? Could Sam Walton’s stores have spread across the country without government-sponsored roads on which goods and customers travel? . . .

The importance of public goods is not simply an argument for progressive taxation—that is, asking people who’ve been extremely successful to support things like roads and education, from which they and their businesses benefit. It’s also an argument for taxation in general. The rich should pay more, yes, but everybody who can pay something toward the cost of financing government should do so.

Now, the observation about public education doesn't even make an obvious case for taxing people at a level sufficient to pay for public schools. While I'm sure many rich businesspersons did attend public school, it remains an open question how much to emphasize public as opposed to private schools. If some of those rich people attribute their success to public education, they can go ahead and make that argument — fine. But other rich people might feel they would have been at least as successful if they had attended private schools. Still other rich people might say their private education shows that we should be focusing more on private schools. (I realize that you might not care much about what kind of education allows 1% of the population to become rich — but I'm operating under Warren's own premise that we should shape policy based on looking at what has benefited the rich.)

As for TNR's support of progressive taxation, I still don't see how that follows from all this discussion of how someone who runs a profitable factory couldn't have done it without police to stop the factory from being burgled or their employees from being murdered! Whether revenues should come from progressive or flat taxes — or, high or low corporate taxes — are separate issues from the observations about the successful factory. The New Republic's Editors believe that the tax rates should be progressive, and they may be exactly right about that. As I said, I happen to agree with them. But this isn't the same issue as whether to raise enough tax revenues to fund the police and courts.

By the same token, I happen to agree with TNR that government should provide some safety net for our least fortunate citizens. But I don't think even the editorial itself is arguing that this is explained by Warren's discussion of a businessperson who enjoys public services like the police to keep their factory safe.

It's also worth stepping back and asking what people like Warren and TNR are trying to accomplish from all this. The undertone of their statements is that conservatives might become more liberal if only they'd think more clearly about the importance of government in a capitalist society (especially the federal government, since Warren is running for the U.S. Senate). Hence, TNR claims to be making a "moral case" against conservatives who "argue that taking money from people, particularly successful people, is unfair because they, not the government, earned that money."

But just look back at Michele Bachmann's statement during the debate. The conservatives who say this kind of thing certainly are upset about taxes — but not all taxes. They want people (including the rich, of course) to be taxed enough to raise money for the things they like, including the police and the military. For many conservatives, this even includes public schools and Social Security and Medicare. At the same time, they would like to see massive federal tax cuts, because they believe the federal government wastes a lot of money on programs that either do more harm than good, or might even do a little good but not enough to be worth all the money they cost. These conservatives may be right or wrong, but I don't think their mistake is in how they think about the very nature of taxation itself. Everyone is for taxation — to pay for the things they like. And everyone is opposed to taxation — when it pays for things they don't like.

Now, onto the other editorial I mentioned: E.J. Dionne wrote this bizarre piece. I have less to say about this one, because almost none of it is spent actually making the case for what Warren said. 90% of it consists of Dionne (gleefully?) taking jabs at his Washington Post colleague George Will for writing a poorly reasoned editorial against Warren. (Dionne is right about that: Will's column was weak.)

When Dionne finally gets around to making the "proper case for liberalism" — which he interestingly admits "does not happen enough" — here's all he says:

Liberals believe that the wealthy should pay more in taxes than “the rest of us” because the well-off have benefited the most from our social arrangements. This has nothing to do with treating citizens as if they were cows incapable of self-government. As for the regulatory state, our free and fully competent citizens have long endorsed a role for government in protecting consumers from dangerous products, including tainted beef.

As I said in my earlier blog post, even if you agree with this, you're in agreement with some people who are pretty far right. Even supporters of a flat income tax agree that the wealthy should pay more in taxes than the rest of us. Of course, he would probably say: "No, that's not what I meant! I mean the rich should pay a higher percentage of their income." I happen to agree, but not necessarily because "the well-off have benefited the most from our social arrangements." I'm for progressive taxation because we need to get the revenue from somewhere, and while taxing anyone is going to cause pain, it'll hurt the rich the least because they have more money to spare. If this means I end up agreeing with Dionne or Warren on that issue, I'm fine with that. But even if this policy, or other left-leaning policies, are good ideas, I don't know see how Warren or Dionne or The New Republic have given the real reasons why they're good ideas.

Policy uncertainty and jobs

"Policy uncertainty" has dramatically increased since the September 2008 crash. (via)

That article (written by 3 economists at Stanford and University of Chicago) notes that it's hard to disentangle uncertainty about policy (tax rates, health-care law, regulations) from uncertainty about the economy as a whole. But the authors tried to isolate policy uncertainty as a distinct factor inhibiting businesses from hiring people.

They "estimate that restoring 2006 levels of policy uncertainty would yield an additional 2.5 million jobs over 18 months."

UPDATE: My mom, Ann Althouse, remarks: "And yet the government is always scrambling to help us out with new policies." She quotes President Obama from today:

“If Congress does nothing, then it’s not a matter of me running against them. I think the American people will run them out of town. I would love nothing more than to see Congress act so aggressively that I can’t campaign against them as a do-nothing Congress.”

She urges us to "[r]econsider the amazing value of nothing."