The Spectator

There have been many economic theories over the centuries, accompanied by controversies among different schools of economists. But one of the most politically prominent economic theories today is one that has never existed among economists – the ‘trickle down’ theory. Yet this non-existent theory has been attacked from the New York Times to a writer in India. Franklin D. Roosevelt’s speechwriter Samuel Rosenman referred to:-

‘the philosophy that had prevailed in Washington since 1921, that the object of government was to provide prosperity for those who lived and worked at the top of the economic pyramid, in the belief that prosperity would trickle down to the bottom of the heap and benefit all.’

The same theme was repeated in the election campaign of 2008, when candidate Barack Obama attacked what he called ‘the economic philosophy’ which

‘says we should give more and more to those with the most and hope that prosperity tickles down to everyone else.’

Whether in the United States or in India, and whether in the past or in the present, ‘trickle down’ has been a characterisation and rejection of what somebody else supposedly believed. Moreover, it has been considered unnecessary to cite any given person who had actually advocated any such thing.

The phrase ‘trickle down’ often comes up in discussions of tax policies.Tax revenues have in a number of instances gone up when tax rates have been reduced. But any proposal by economists or others to cut tax rates, including reducing the tax rates on higher incomes or on capital gains, can lead to accusations that those making such proposals must believe that benefits should be given to the wealthy in general or to business in particular, in order that these benefits will eventually ‘trickle down’ to the masses of ordinary people.

But no recognised economist of any school of thought has ever had any such theory or made any such proposal. It is a straw man. It cannot be found in even the most voluminous and learned histories of economic theories.

What is sought by those who advocate lower rates of taxation or other reductions of government’s role in the economy is not the transfer of existing wealth to higher income earners or businesses but the creation of additional wealth when businesses are less hampered by government controls or by increasing government appropriation of that additional wealth under steeply progressive taxation laws. Whatever the merits or demerits of this view, this is the argument that is made – and which is not confronted, but evaded, by talk of a non-existent ‘trickle down’ theory.

More fundamentally, economic processes work in the directly opposite way from that depicted by those who imagine that profits first benefit business owners and that benefits only belatedly trickle down to workers.

When an investment is made, whether to build a railroad or to open a new restaurant, the first money is spent hiring people to do the work. Without that, nothing happens. Even when one person decides to operate a store or hamburger stand without employees, that person must first pay somebody to deliver the goods that are being sold. Money goes out first to pay expenses and then comes back as profits later – it at all. The high rate of failure of new businesses makes painfully clear that there is nothing inevitable about the money coming back.

Even with successful and well-established businesses, years may elapse between the initial investment and the return of earnings. From the time when an oil company begins spending money to explore for petroleum to the time when the first gasoline resulting from that exploration comes out of a pump at a filling station, a decade may have passed. In the meantime, all sorts of employees have been paid – geologists, engineers, refinery workers, and truck drivers, for example. It is only afterwards that profits begin coming in. Only then are there any capital gains to tax. The real effect of a reduction in the capital gains tax is that it opens the prospect of greater future net profits and thereby provides incentives to make current investments that create current employment.

Nor is the oil industry unique. No one who begins publishing a newspaper expects to make a profit – or even break even – during the first year or two. [note: Sowell was writing at a time when newspapers were profitable] But reporters and other members of the newspaper staff expect to be paid every payday, even while the paper only shows red ink on the bottom line. Similarly, Amazon.com began operating in 1995 but its first profits did not appear until the last quarter of 2001, after the company had lost a total of $2.8 billion over the years. Even a phenomenally successful enterprise like the McDonald’s restaurant chain ran up millions of dollars in debts for years before it saw the first dollar of profit. Indeed, it teetered on the brink of bankruptcy more than once in its early years. But the people behind the counter selling hamburgers were paid regularly all that time.

In short, the sequence of payments is directly the opposite of what is assumed by those who talk about a ‘trickle down’ theory. The workers must be paid first and then the profits flow upward later – if at all.

Sam Harris recently released a podcast (an AMA to be specfic) in which he discusses atheism, artificial intelligence, rape, public speaking, meditation, consciousness, free will, intellectual honesty and other stuff.

Pretty interesting, so I dropped it here.

Artist, radical feminist, mathematician/physicist in training, queer spinster in training, tricoteuse, cat lady, Wobbly, anarcho-bike punk, Earth First!er, dance fiend, hairy legged prude & theorist with a PTSD/BPD (dis)Ability who can be seen toting about math books, an accordion, juggling balls, or placards any day of the week. (And quite possibly a camera)

triggered

Well then.

With this being budget week, the federal government’s taxing and spending decisions are under the microscope — as they should be in a healthy democracy. But what about government’s hidden tax: regulation? With no equivalent of a federal budget day, regulatory decisions and their implications get precious little scrutiny and we are all worse for it.

Thankfully, regulatory transparency got a considerable boost Thursday when the Red Tape Reduction Act (C-21) received Royal Assent and became law. Minister Tony Clement, who has championed the bill, can be proud that Canada is now the first country in the world to require that for every new regulation introduced one of equivalent burden must be removed.

C-21, has been operating as policy for several years already, which means that the costs of new rules must be quantified and equal or greater costs removed. It essentially caps the cost of rules coming directly from regulations. Government rules can also come from legislation and policy so the one-for-one rule is not a cap on the cost of all government rules. Still, it is a very good start.

Why is this so important? Regulation, both necessary and unnecessary (red tape), are a huge hidden tax on all Canadians. The latest estimate from the Canadian Federation of Independent Business suggests that regulation costs $37 billion a year. To be clear, not all of these costs could or should be eliminated. But Canada’s small business owners suggest that about 30 per cent of these costs, $11 billion, could be eliminated with no negative impact on human health, safety or the environment. This number seems reasonable given that British Columbia has reduced its regulatory requirements over the past decade by over 40 per cent with no one arguing the cuts had any serious negative impacts.

Prime Minister Harper calls red tape a “silent killer of jobs.” He’s right. One of the disturbing findings from CFIB’s recent report is that one in four of today’s business owners would not advise their kids to go into business given the current burden of complying with government rules. But discouraging businesses from starting is just the beginning of red tape’s negative impacts. Red tape wastes valuable time that could be spent doing any number of other things like serving customers, learning new skills, or enjoying family. For consumers, it increases prices and reduces choices.

Red tape’s most destructive impact is that it undermines the relationship between government and its citizens. Struggling with confusing language, getting put on hold for excessive periods of time, getting bad compliance advice from government agents or running up against a dumb, costly rule shakes one’s faith that the taxes we pay are working for us not against us. Small businesses often comment on CFIB’s surveys that they “feel like the enemy” when dealing with government.

In this context, it’s reassuring that C-21 received near unanimous support, with some opposition critics arguing that it doesn’t go far enough. While the one-for-one rule does not explicitly reduce the burden of red tape, it has gone beyond just capping new regulatory costs. In 2012-13, it saved small businesses 98,000 hours and $20 million.

Two other reforms announced in 2012 as part of the federal Red Tape Action Plan are important to make government’s hidden tax more visible. The government recently published a 36-department inventory of 129,860 regulatory requirements that will be tracked annually. This inventory will allow for an overall assessment of whether regulatory activity is increasing or decreasing in the same way we can currently track whether government spending and taxes are increasing or decreasing.

The other important reform is that each department is now required to publish and track performance against service standards. For example, a department could publish a standard of a 15 day turn-around time for a permit, the goal of meeting that standard 90 per cent of the time and results against that goal. Government departments don’t have the same strong incentive to keep service high that businesses have because they are not subject to the discipline of competition. Publishing service expectations and results is therefore critical to ensure some accountability.

Taken together these reforms have the potential to give Canadians a much clearer picture of the impact of government’s regulatory activity. Making the hidden tax of regulation more visible deserves our applause and attention. Maybe soon we will have a regulatory accounting day that gets as much profile as budget day does.

I'm on the fence about whether or not C-21 is a good idea.

http://blogs.spectator.co.uk/lara-prendergast/2015/04/white-people-have-now-been-banned-from-an-anti-racism-event-at-a-british-university/

Bahar Mustafa, the Welfare and Diversity officer for Goldsmiths Students’ Union, must have a strong sense of irony. You’d have to, to run an ‘anti-racism’ event which states that ‘if you’re a man and/or white PLEASE DON’T COME. As the student publication the Tabreports, the event claims to be ‘challenging the white-centric culture of occupations’, ‘diversifying our curriculum’ and building a ‘cross campus campaign that puts liberation at the heart of the movement’.

Back in February, Mustafa, who describes herself on Twitter as a ‘queer, anti-racist feminist killjoy’,came to my attention when she helped organise a ‘BME ONLY social’ before a screening of the film Dear White People. For those not acquainted with the lingo, this means for Black and Minority Ethnic only.

And now this, essentially the proposition of racial segregation in a British university. And yes, it’s trussed up in the language of the new PC – ‘non-binary’, ‘safe-space’, ‘BME Women’, ‘OUR liberation’ – but there are no two ways about this: this is division along racial lines, and it is astonishing that this is deemed acceptable. It wouldn’t be tolerated anywhere else in Britain - so why on earth is it being tolerated at a British university?

God damn it. Fuck these SJW tumblrites.

That keeps me from dancing,
With the one I love,
My mind holds the key.

There's a place, I have gone.
There's a beast, and I let it run.
Now it's running my way.

It's fairly simple.

If you want to reduce poverty, use wage subsidies.

Some fucking people.

An old paper from Lee E. Ohanian. Since most of you won't read it, I'll give a simple walk-through.

The theory/models
The Recession in the US over the course of 2007-8 was significant because lower output/income seems to have come almost exclusively from a drop in labour input, whereas most other recessions (and the '08 Recession in other countries) are to do with falls in productivity. I can't copy the graph used in the paper, but it shows an uncharacteristically large drop in hours worked per capita. According to Ohanian, current models which incorporate financial distress are not yet good enough to account for such a large deviation.

And there is evidence that what occurred in the US was different from other high-income countries. The fall in output and consumption (averaged across Canada, France, Germany, Italy, Japan and the United Kingdom) is 8.5pc, similar to the US's 7.2pc, and 4.8pc, similar to the US's 5.4pc respectively. But the average per capita employment decline from 2007Q4 to 2009Q3 in those high income countries is just 2pc, to the US's 6.7pc. So there's obviously something interesting happening in the American labour market.

Using a fairly standard neoclassical business cycle model; there is a production function which models inputs and outputs, a household time allocation decision between market time and leisure and a consumption/investment allocation decision. However, when we plug the actual data into the model we will see deviations; output will not be where the production function means it ought to be. The deviations we will see will offer a diagnostic basis with which we can examine the causes of the Recession.

The hours worked during the 2007-8 Recession in the US are much too low relative to the marginal product of labour, meaning something in the economy is acting like a tax on labour and depressing the incentive to work, and it appears this wedge in labour is the biggest factor. The choice that households make to work over leisure time (that is, the marginal rate of substitution between consumption and leisure) should be equal to the marginal product of labour. The average deviation for a post-WWII recession is 2.4pc (meaning the marginal product is exceeding the marginal rate of substitution), whereas the deviation in 2007-8 is 12.9pc. The average labour deviation for other high income countries was just 0.9pc.

There was almost no capital deviation in the US or other high-income countries (at just +0.3pc and +0.1pc respectively). However, there is a significant productivity deviation for non-US countries at no less than 6pc individually, and an average of 7.1pc. There is, however, almost no productivity decline in the US, different from previous post-war recessions like 73-74 and 81-82, which showed decreases in TFP or real output per hour. According to Ohanian, also, the labour market deviation can account for virtually all of the 2007-9 downturn. This is also similar, in some respects, to the Great Depression, which also had an incredibly significant labour deviation.

Explaining the Recession
Ohanian notes that the primary narrative of the Great Recession is the "financial explanation", which states that around mid-2008 the Recession significantly worsened as some asset-backed securities began to decline in value and sub-prime mortgages began to turn toxic, putting stress on the financial system. However, the idea that the financial system (or the capital market) could cause such massive fluctuations in economic well-being is challenged by the idea that in both US and non-US economies the capital deviation was incredibly minor. And, according to Ohanian, it doesn't explain the labour deviation.

Ohanian goes on to note how issues in the financial system aren't necessarily correlated with economic downturn. The 40pc declination in banks between 1929-1933 were mostly the result of mergers and small bank failures, meaning very little disintermediation. He also challenges Milton Friedman's hypothesis of the Great Depression--which is essentially the idea that money contracted too much--by showing how industrial hours worked had declined by 29pc between Jan. 1929 and Oct. 1930.

So instead Ohanian offers a policy-driven explanation, claiming that the 2008 tax rebate, TARP, ARRA, Cash for Clunkers and other policies contributed significantly. Through their design, these policies distorted incentives and led to uncertainty about the underlying shape of the economy. For example, the effect of US Treasury mortgage modifications was to impose a de facto income tax rate of over 100pc on some households, and interest rate spreads as well as domestic and foreign stock prices deteriorated much more quickly following the announcement of TARP than they did at the failure of Lehman Brothers.

However, more research is needed into the labour deviation of 2007-9 to explain just why it occurred. It is thought that the labour deviation of the 1930s occurred because of cartelisation and unionisation policies pushed by Hoover and Roosevelt which raised wages above competitive levels and reduced employment.

In conclusion/TL;DR
Neoclassical economics points to a disequilibrium in the labour market in order to explain the severity of both the Depression and the Recession. Significant labour deviations during 2007-9 only seem to be a function of the US economy, as other high-income countries saw significant productivity deviations but little labour deviation.

check it out

its dank

DOESN'T MATTER IF WE'VE GONE TOO FAR

get the fuck off my blog

So, what the fuck have you just finished? What the fuck are you reading? What the fuck are you going to read? What the fuck are you going to buy in order to read?

I'm currently reading a biography of FDR by Jean Edward Smith (it's a bit dry), the third book of Adam Smith's The Wealth of Nations and The Map and the Territory 2.0 by Alan Greenspan.

After I've finished those three, I'll be starting: The Problems of Philosophy by Bertrand Russell, Napoleon the Great by Andrew Roberts, The Quest for Cosmic Justice by Thomas Sowell, House of Debt by Mian and Sufi and A Universe From Nothing by Lawrence Krauss.

On my Amazon wishlist I have: A Monetary History of the United States by Milton Friedman and Anna Schwartz, The Great Stagnation by Tyler Cowen, Wittgenstein: A Very Short Introduction by A.C. Grayling, The Antelope Strategy: Living in Rwanda After the Genocide by Jean Hatzfeld, Terror and Liberalism by Paul Berman and Our Mathematical Universe by Max Tegmark.

Financial Times.

Policy makers in Italy, Portugal and Spain say their economies and financial systems are strong enough to survive a Greek departure from the eurozone, but they acknowledge that Grexit might set a precedent replete with risks for Europe’s 60-year-old integration project.

Government officials and independent analysts in Lisbon, Madrid and Rome say a chaotic Greek abandonment of the euro, bringing widespread economic distress and social upheaval in its wake, would serve as a cautionary shock and probably weaken anti-euro political forces in countries exposed to possible contagion from Greece.

According to José Ignacio Torreblanca, head of the Madrid office of the European Council on Foreign Relations think-tank, a Grexit would not be good for Podemos, Spain’s new radical leftist party, which has high hopes of success in national parliamentary elections due at the end of this year.

“I’m not saying this would destroy Podemos, but it would possibly spoil their plans to be the main force of the left,” he said. This explains why the party is already distancing itself from Syriza, the governing Greek party that is in some respects its ideological sister movement, he added.

On the other hand, a Grexit that was carefully managed and led to economic recovery in Greece, albeit after five to 10 years, might strengthen populist parties such as Italy’s Northern League and Five-Star Movement, which contend that eurozone membership has been little short of a national economic disaster.

The lessons to be drawn from Grexit would also depend on whether Greece was able to keep its EU membership, whether its democratic institutions and the rule of law remained intact, whether it aligned itself more closely with Russia or other foreign powers, and whether there were dangerous consequences for regional security in southeast Europe.

For government officials and foreign policy analysts in Rome, one big concern is that a Greek departure from Europe’s monetary union would weaken the push for a deeper political union that Italy has always supported.

For a Greek exit would not only show, for the first time since the 1950s, that European integration can break down and even go into reverse. It would also damage the EU’s image as a club that always looks after its weaker member states — no small matter for the 18 EU member states that have smaller populations than Greece’s 10.8m.

Cyprus, Ireland, Portugal and Spain each followed Greece in requiring emergency rescues from their European partners and the International Monetary Fund between 2010 and 2013. But, with the partial exception of Cyprus, each has emerged from its crisis with healthier public finances, more stable banks and better economic growth prospects.

The European Central Bank’s evolution in 2012 into a more credible “lender of last resort”, willing to buy vast amounts of government bonds in order to protect the eurozone’s unity, and the ECB’s current quantitative easing programme have increased the confidence of southern European governments in their ability to ride out storms originating in Greece.

In one typical comment, Rui Machete, Portugal’s foreign minister, said recently that a Greek exit from the eurozone would be “worrying” but “not tragic for Portugal”.

However, Portugal’s public debt peaked last year at 130 per cent of gross domestic product, and the combined level of corporate and household debt is even higher. Moody’s, the credit rating agency, said in a report last week that “Portugal’s external vulnerability remains high, given its high external debt levels, and the country would be susceptible” if investor confidence took a hit from a Greek exit.

Officials in Lisbon, Madrid and Rome point to their countries’ very low government bond yields as proof that there is no threat on the horizon. “The EU is much more solid than it was in 2011 and 2012,” one Italian official said.
However, such confidence begs the question of how solid the eurozone will look once the ECB withdraws its exceptional support measures — as is likely after two years or so — and in the event of a 2008-style financial maelstrom.

Valéry Giscard d’Estaing, the former French president, is among those who say Greece ought to leave the eurozone, at least temporarily, in what he calls “a friendly exit”.

“It is absurd to say this would be a failure of Europe. Greece still has its place in the EU. By leaving the euro, it would only be joining countries such as the UK, Sweden, the Czech Republic and so on, which haven’t adopted it. Better still, this exit would permit Greece to return at a later date,” he told the financial newspaper Les Echos.