Tax Facts

There are a number of myths that I continuously hear repeatedly on the right. One is that federal taxation is exceptionally progressive. I've shown before that it isn't. It's progressive, but mildly so. Here's a chart that contrasts share of income with share of tax burden by income group when you consider all taxes, including state and local. (Italicized portion added per DF's comments below, sorry for my poor writing).


Another claim is that the Bush tax cuts lead to an increase in federal revenue. Here's the data. Bush is the first President since Eisenhower to preside over an administration that actually saw a reduction in revenue. The Bush reduction was even greater than Eisenhower, making Bush the worst performer by this measure.

I've made these points before, but what I want to add here is information about how the tax code has become much less progressive over the last few decades for the highest income groups. Looking at my prior link you can see that tax receipts as a % of GDP are not a lot different over the last few decades. On the order of 17 or 18% of GDP typically. While that has remained fairly constant, what's changed is that the burden of those receipts is falling more and more to the poor.

Most people know that the tax rates for the upper income brackets were enormous. The top marginal rate was something like 91% at one point. But what was the effective rate? Tax havens and shelters play a role. How much of a role? Piketty and Saez have the data in detail here. A chart derived from this data is below:

The Credibility of Evangelical Conferences

I think it's pretty well established that Ergun Caner faked a Muslim background in order to ride fear and bigotry into evangelical stardom by Muslim bashing. He's not the only one. There's a lot of demand for such nonsense in neoconservative circles.

OK, things happen. Scammers sneak through. What can you do? How about not booking a guy like Ergun Caner at Christian conferences as if he's an expert on Islam? But no, at "Veritas Evangelical Seminary" (whatever that is) we have Ergun Caner lecturing on "The Secrets of Islam." I'd think he'd be embarrassed to show his face and even talk about Islam at this point. Not in the evangelical world apparently.

How Does the Free Market Solve This?

I was at the library yesterday to pick up a book on hold (Voices from the Other Side if you're curious) and I scanned movies and saw "Darwin's Nightmare" which I thought looked interesting and informative. It was. Also heart breaking.

Every day 500 tons, sometimes more, of fish is flown out of Tanzania, mostly to Europe. It is extracted from Lake Victoria. What's flown in is armaments sold in places like the Congo or Nigeria. These are coming mostly from European arms dealers. Meanwhile the residents of Tanzania are literally starving. Most children you see don't seem to have any parenting. Fathers are either gone working as fishermen or dead due to AIDS. Widows turn to prostitution. Children find things to smoke or sniff so they can sleep in the streets without feeling anything. If they are sodomized the high prevents pain. Children literally beat each other up fighting for food.

Sometimes the fish load is more than the planes can carry, so the unfrozen remains are available. These are collected by the residents and placed on racks. Covered in flies and maggots, the lucky employed work through them. The rotten fish are boiled. This product is sold to the residents.

The UN comes in and notes that yeah, everyone is starving and they need aid. They complain about the suffering. But they go home and eat their fillets. The question is raised in the movie. The source of the problem is the incoming armaments and outgoing food. To request aid is to treat the symptom. Wouldn't it make more sense for Europe to block the armaments and block the plundering of the lake? But if that was done what would these UN diplomats do with themselves?

The problem in my mind is the institution itself. The arms dealers like the present system. The cargo plane owners like it. The fish preparation factory owners like it. The providers of racks like it. The wealthy few corporations really like what's happening. The many poor suffer.

I have a difficult time understanding free market solutions to this problem. I think I know what liberterians would suggest. I just cannot fathom though why we should expect these solutions to work. What is the free market solution here?

This article from the conservative Hoover Institute says the problem is property rights. Robinson says that Europe had patent law. This allowed persons in Britain to be secure in knowing that they would enjoy the benefits of their inventions. He says Europe cast aside serfdom earlier than Africa. Serfdom is contrary to good property rights (is it?). In parts of Africa today certain chiefs control everything and you need good connections to have hope.

I agree that's a problem, though it doesn't seem to be a problem in Tanzania. The cargo planes are owned by a company and they don't seem to have problems. The fish preparation factories are doing fine. They can pay guards $1/day to watch their plants, though those guards are sometimes murdered. I didn't see big problems for owners, but supposing this is an issue. How do we fix it?

Open up the markets to free trade, says Robinson. I don't understand how that solves anything. The Europeans are having no difficulty shipping in arms and flying out the food. My understanding is that the barriers to trade have been low for 30 years. Next Robinson says economics should play a bigger role in foreign policy. Finally we need to promote more checks and balances in government in Africa.

These later two suggestions seem too vague to be useful. The free trade suggestion seems to me is already being implemented, but it's the one concrete suggestion. So what else?

Here's another approach. Reduce trade barriers, open markets, end the subsidies.

How does this solve the problem? There's plenty of trade. Europeans are good at making weapons. Africans lack technical skills, so they fish. We're all pursuing our comparative advantage. And the children starve. The mothers are driven in to prostitution. $10 for the night. That's their comparative advantage. In my view the free market solution should be expected to lead to status quo.

In my view what would help is independence. Prior to 1980 economic growth in Africa following WWII was pretty good. A shade under 2% growth in GDP. Since then they have been subjected to international trade agreements that prevent them from operating independently. Growth didn't just stop, but declined. Countries that have governments with enough muscle to resist those agreements have done well (China, India). They need independence, not forced free trade and neoliberalism.

One can disagree with my solution, but why think more free trade would help Africa?

Weird Al-Party at the CIA

Funny or disturbing?

Historical Tariff Rates

A screen shot from Ha-Joon Chang's Kicking Away the Ladder.

White Blonde's Aren't Terrorists

What a scoop Bob Dutko had today. It turns out he was interviewing Robert Spencer. Well, Robert Spencer is in the news. The Norwegian.....terrorist...apparently regards Spencer and other right wing Muslim bashing pundits, as intellectual mentors.

So I turn on Dutko and he says "Robert Spencer joins me know." Wow, what great timing. So they start talking about this book that supposedly shows Obama is some sort of Muslim lover, and the interview is going on long enough that I'm wondering if he's replaying an old interview. Nothing about the terrorist incident in Norway.

But finally Spencer raises it. "See they're trying to tie me to this incident, which is about as silly as blaming the Beatles for Charles Manson when he heard instructions to murder in their song "Helter Skelter."

Well at least somebody raised the issue. So Bob finally starts talking about it and of course it's all ridiculous. Further he's not even really sure this is terrorism, because a terrorist is motivated by his ideology. But Spencer corrects Bob. "That's just it. That's what's so insidious about the media spin. He does have an ideology that he shares with me, and so they can paint me as some sort of villain."

Well at least Spencer understands what's happening. Spencer then had to leave, but Bob took calls regarding his belief that 1-in fact this wasn't terrorism and 2-Breivic isn't really a Christian.

Unfortunately I wasn't able to record the audio, but I did call in and speak with Bob about this. I said his double standard is becoming crystal clear. He had said earlier "Let me remind you of these various terrorist incidents" and he listed various things that killed typical a handful of people. One that he described was the Ft. Hood attack. I asked Bob to think about the Ft. Hood attack. This guy attacked members of a military that presently is illegally occupying Muslim lands. Bob had defined terrorism for me in the past. He had said it involves attacks on civilians. So when a non-Muslim attacks civilians that's not terrorism, but when a Muslim attacks military targets that's terrorism?

I was barely able to get that out, or maybe I got it out in a few bits, because Bob was interrupting me immediately to dispute every side claim. "I don't agree that we are occupying Muslim lands." "Ok, our military is present in Muslim lands attacking Muslims." "I don't agree to that. We were invited." "Libya invited us?" "I'm not talking about Libya." "WTF." I'm going from memory here, but it was something like this.

The guy at Ft. Hood said "Allah Akbar". He had an ideology, Bob said. I replied that Robert Spencer knows that Breivic did as well. But Bob says he doesn't agree with Spencer. If the Ft. Hood guy attacked our military IN AFGHANISTAN, then it wouldn't be terrorism, but these military people aren't actively involved in combat. Breivic didn't shout Allah Akbar.

This is just plain convoluted in my mind. What is the criteria for terrorism? "So you have to say Allah Akbar to be a terrorist." No, if a Christian shouted Jesus is Lord he'd be a terrorist. Why would you say that I wouldn't think someone is a terrorist if they shouted Jesus is Lord, Bob asks.

I said I just don't understand what constitutes terrorism so I'm trying to ask the question. They have an ideology, Bob says. 20% of Muslims think the use of terrorism is a legitimate response to Americans. That is a very high percentage, Bob says. Sure, it's not a majority. But that's still a lot of people.

But, I said, you support terrorism. When Israel engages in terrorism by attacking Palestinian civilians you support that. "Now you're changing subjects. You want to call me on Open Line Friday about that we can talk about that, but that's not what this is about."

Anyway, that's sort of my best recollection. Might not be perfect. Not written great. I just wanted to try and capture it for my own benefit. Bob was more irritable than he's ever been with me, constantly interrupting, even pontificating on how I was losing the debate. I think he's just on very shaky ground here and that discomfort made him irritable.

Here's the bottom line. In the real world Bob wants Muslims to be the only terrorists. He wants to allow non-Muslims theoretically, but contrive a definition that generally excludes non-Muslims. It used to be about attacks on civilians. Not any more. That's no longer working. Now it's attacking members of a military that aren't presently engaged in combat, but maybe if they are located in their home country, and you have to sort of shout in a way that informs us that you have some sort of ideology that's motivating this violence. And "ideology" needs to be defined in such as way as to exclude this blonde haired Norwegian. Make sense? It does to Bob Dutko.

Historical Debt Limit Increases

The debt limit has been raised routinely and without controversy often in the past. Below is a chart showing the increases since Carter. Why the sudden controversy now? Data via the LA Times. Click to enlarge.

Colbert, Romney, and Ha-Joon Chang

In 23 Things They Don't Tell You About Capitalism Chang explains why it is not true that businesses should be run exclusively in the interests of shareholders. In a nutshell stockholders interests are not necessarily aligned with the long term interest of a company. A stockholder can shift his money very quickly. So if a company can maximize profits today, by reducing wages or resisting investment in equipment, that can translate to big payoffs for a stock holder today. They can reap large dividends. And if that means down the road the company is not capable any more, that's OK because it's easy to jump out. There's risk here for the stock holder because he may not get out in time, but if he's smart he can do well.

That's not true of a worker. A worker can't just learn new skills or move to a new location in a single day. So a worker is more interested in the long term prospects of the company that he works for.

Chang uses GM as an example. Decades ago GM was on top of the automotive world. To please Wall St they focused less on innovation and investment in themselves and more on paying out dividends. They rode that strategy all the way to bankruptcy and state bail out. The stock holders were happy and didn't really mind the exorbitant CEO salaries. They were paid well. But the workers had tough times.

Steven Colbert kind of illustrates the point in this commentary related to Romney. It touches on the idea that what we need in Washington is people with business experience.

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Questioning Assumptions

Via HP's delicious links, an interesting NY Times article from 2007 on the plight of heterodox economists, and the reliance of orthodoxy on mathematical models and plausible sounding theories as opposed to the more scientific approach of confirmation with test data. Here's an excerpt:

The experience of Mr. Card’s graduate students suggests how the process can work. Mr. Card is by no means on the fringe, but he said his research on the minimum wage in New Jersey “caused a huge amount of trouble.” He and Alan B. Krueger, an economist at Princeton, found that contrary to what free-market theory predicts, employment actually rose after an increase in the minimum wage.

When Mr. Card’s graduate students went on job interviews, he said other economists would ask questions like “What’s wrong with your adviser? Has he started drinking?”

This is why Mr. Blinder said he advises graduate students “not to do what I do” when it comes to challenging the standard model.

Criticizing the approach that currently dominates the field, Mr. Blinder said economists must look more closely at the real world instead of modeling it in the lab. “Economics is insufficiently scientific,” he said. “Mathematics may be useful, but mathematics is not scientific. It doesn’t generate refutable hypotheses.”

For Those That Doubt the Propaganda Model

Cenk Uygar managed to get a slot on MSNBC, which was a bit surprising to me when I first learned it. Would he follow the path of Donahue? That is, top ratings, but unacceptable in terms of propaganda? Well, that's precisely what he did. He explains what happened in his own words below.

Bill Maher Doesn't Understand Why People Vote R

It makes a bit more sense to me as a former Republican, but still his rant is pretty funny. But he thinks voters are stupid. We keep letting the rich get away with their absurdities by voting for the wrong people. Well, people did vote for Obama hoping things would change and they haven't. So it's not that people are stupid in my view. It's that we don't have choices.

Two related and good articles also. Some don't use the word "rich" to describe the wealthy any more. Chad is like this. It's "job creators". But are they really? This article says no. Also a good article by Matt Taibbi on the corporate tax holiday.

Obama's Right Wing Credentials Becoming Crystal Clear

Thanks so much to investigative reporter Jeremy Scahill and columnist Glenn Greenwald. We are indebted to them for so much exposure. In a very short time frame we've learned of about several policies from Obama that clearly demonstrate his right wing extremism.

1-Scahill discovers Obama's secret prisons in Somalia.

If you want to be a real journalist you have to be unembedded. It's dangerous. But to be embedded is to see only what the government wants you to see, which is nothing. Scahill spend 9 days in Mogadishu in order to report on what is common knowledge in the region. The CIA operates a black site there, where individuals can be rendered and tortured. The CIA is responding with disinformation disseminated to mainstream lackey media outlets, as Glenn Greenwald documents. Read that, then check out Scahill's appearance on Scarbaraough. This secret prison is a violation of Obama's own executive orders. Where is Congress? Where is the left?

2-Obama blocks investigation into anthrax attack

Once again Glenn Greenwald explains how the most respected sources are highly dubious of the government's claims regarding the source of the anthrax attack that occurred prior to the invasion of Iraq that was so instrumental in leading us to war. The questions are so credible that the House has passed a measure related to security that includes a call for an independent investigation. Obama has threatened to veto this bill because of the request for that investigation.

3-Obama supports bill that raises taxes on the middle class and cuts them for the wealthy to resolve the debt ceiling limit.

As reported by Democracy Now, Obama is throwing his support behind a bill that will raise revenue by eliminating popular tax deductions, like deductions for home interest and employer provided health insurance. He'd also slash Social Security and Medicare benefits.

After Wisconsin I was leaning towards the belief that support for Obama still may make sense. Sure, he's terrible. But the Republicans are just as violent AND they want to destroy the poor and middle class. Chomsky makes this point sometimes. He says he thinks Nader was making a mistake encouraging people to vote for him instead of a Democrat. Sure, there's maybe only a dimes worth of difference between Republicans and Democrats. But in a state as powerful as the US that can make a huge difference to suffering people.

That's fair. But there's a flip side. As Ralph Nader pointed out here (worth watching, Republican citizens can agree with a lot of this), if you have no breaking point, that is if you pledge to vote for the Democrat no matter what he does, then he will not be responsive to you. Obama's lack of response to the left is so extreme it's in fact hard for right wingers I know to swallow. And it's getting harder and harder to see even the dime's worth of difference. This guy is not only a right wing war monger. He's a right wing union busting welfare dismantling neoliberal. There's no way I can support this.

My brother Bill said something to me recently and I think he's right. I think we'd be better off if McCain had won. At least then there would be opposition to his violence and class warfare. As it stands Congressional Democrats don't even object to these clear violations of their supposed core principles.

What Passes for Reasoned Economic Opinion

Professor Michael Boskin has an opinion piece in the Wall St Journal today. Excellent credentials. Professor of Economics at Standford. Has a PhD in economics. Chaired the Council of Economic Advisers under Bush. Basically it doesn't get much better than this in terms of a pedigree. Here's what he says:

The lower marginal tax rates in the 1980s led to the best quarter-century of economic performance in American history. Large increases in tax rates are a recipe for economic stagnation, socioeconomic ossification, and the loss of American global competitiveness and leadership.

Can someone explain to me how such a well educated economic expert can make a statement like this? By what measure has the post Reagan era produced the best economic performance? The Reagan era has produced much lower economic growth as measured by GDP than the prior quarter century. An amazing expansion in inequality. Why is this better?

Boskin writes:

First, as college students learn in Econ 101, higher marginal rates cause real economic harm.

They probably do learn that in Econ 101. But is there a reason to believe it based on evidence? I'm not aware of it. Boskin continues:

Second, as tax rates rise, the tax base shrinks and ultimately, as Art Laffer has long argued, tax rates can become so prohibitive that raising them further reduces revenue—not to mention damaging the economy.

Art Laffer may have argued that point. But did he show that the point was true or that tax rates in the US were stifling revenue generation? Sure, conceptually you could imagine that if tax rates got so high people would entirely lose their motivation to work and they'd work less or not work at all. That's what you might call a hypothesis. So what happened when Reagan cut taxes, or when Clinton raised them, or when Bush II cut them again. Did the Bush tax cuts produce more revenue? Did the Clinton tax increases produce less as Boskin is suggesting? I see no evidence for it.

We can either believe the experts or our lying eyes.

I just noticed Krugman also saw Boskin's piece. He's similarly rebutting delusions concerning Reagan.

US vs EU Economic Growth

The right wing understands the appeal of the welfare state. Sure, it would be great to help people that are struggling. It would be great to provide health care for everyone, pay salaries and retrain those that lose their jobs, etc. The problem is when you do that you slow economic growth. So in the end everyone is worse off. If people have incentives to goof off that's what they do. If they have incentives to work (like if they recognize that there are serious consequences to not having a job, like no food, no health care, etc) that lights a fire under them and they work hard. This is why America has so much better economic growth than Europe does. You may not have much of a safety net and we may be highly unequal. But that's the price you pay for rapid growth.

When HP makes these claims, I just assume he's right that EU growth lags US growth. I mean, people don't just make this stuff up, do they? But then I recall that he'd told me that South Korea developed economically via neoliberalism. That looks to be about the opposite of the truth. I'm sure he believed it. Maybe he was told this by an expert. But it turned out to be wrong.

So you know what I'm going to do? I'm just going to see what economic growth in Western Europe has been over the last few decades. Sure, they have a much more extensive welfare state. Maybe that's not a bad thing. It seems plausible that if people fear the loss of their job they'll work hard. But here's what else seems plausible. If people don't fear losing their job then that produces dynamism as well. Suppose I work in a dying industry. If there's a strong welfare state, where my food and health care are covered and where I can be retrained if I work in an industry that dies, I may not fight tooth and nail to retain a dying job that sticks with old technology. Innovation doesn't scare me. I might embrace it.

Well, that's just a theory. The data is what I'd like to see. So I went over to Gapminder where they have all the GDP data. I recorded GDP/capita for the US and also various EU countries at the years indicated. The data is GDP/capita as adjusted for inflation and by Purchasing Power Parity (PPP). That's a value that adjusts for the cost of living. For instance you might get paid more in Norway but if everything also costs more you aren't living any better. PPP adjusts for those factors so you are really measuring output in terms of what you can purchase where you live. Here are the values.

	1950	1960	1970	1980	1990	2000	2009
United States	15856	18175	23346	27838	33077	39474	41256
Austria	5733	10084	15079	21285	26135	32009	35636
Belgium	7990	10077	15380	20970	24926	29940	32257
Czech Republic	6691	9764	12359	15256	16270	16823	21968
France	7104	10244	15704	20334	24677	28636	29775
Germany	6090	12091	17009	22148	24996	29727	31191
Greece	3040	5067	10151	14877	16852	20675	27626
Hungary	4726	6954	9582	12019	12309	13592	16983
Iceland	7750	9890	13533	22435	26373	31092	34990
Ireland	4939	6125	8868	12217	16905	28497	35693
Italy	4461	7315	11788	16202	21561	27160	26161
Luxembourg	14555	17087	22299	27022	42468	63924	70857
Netherlands	7408	10621	16063	20372	24902	33000	36075
Norway	8490	11481	16289	24961	31162	43174	47915
Portugal	2962	4196	7769	11420	15369	16910	19898
Spain	3280	4603	9470	13791	18065	23410	26812
Switzerland	13868	19059	25863	28732	32876	34387	38004
United Kingdom	9767	12167	15154	18200	23124	28645	31042

I know that's kind of tough to read with numbers running together. I'll present it in a simpler manner below. But let's note a couple of things from the above. The US is crushing EU in 1950. But by 2009 the gap has closed. In fact in a couple of cases (Norway, Luxembourg by a long way) the US has been passed.

Here's another way to look at this data. What I've done below is divide the US GDP/Capita by that of the various EU countries. This shows the US income as a multiple of the income of the other country. So in 1950 the US had an income 2.77 times that of Austria. Watch how it progresses through the years.

	1950	1960	1970	1980	1990	2000	2009
Austria	2.77	1.80	1.55	1.31	1.27	1.23	1.16
Belgium	1.98	1.80	1.52	1.33	1.33	1.32	1.28
Czech Republic	2.37	1.86	1.89	1.82	2.03	2.35	1.88
France	2.23	1.77	1.49	1.37	1.34	1.38	1.39
Germany	2.60	1.50	1.37	1.26	1.32	1.33	1.32
Greece	5.22	3.59	2.30	1.87	1.96	1.91	1.49
Hungary	3.36	2.61	2.44	2.32	2.69	2.90	2.43
Iceland	2.05	1.84	1.73	1.24	1.25	1.27	1.18
Ireland	3.21	2.97	2.63	2.28	1.96	1.39	1.16
Italy	3.55	2.48	1.98	1.72	1.53	1.45	1.58
Luxembourg	1.09	1.06	1.05	1.03	0.78	0.62	0.58
Netherlands	2.14	1.71	1.45	1.37	1.33	1.20	1.14
Norway	1.87	1.58	1.43	1.12	1.06	0.91	0.86
Portugal	5.35	4.33	3.01	2.44	2.15	2.33	2.07
Spain	4.83	3.95	2.47	2.02	1.83	1.69	1.54
Switzerland	1.14	0.95	0.90	0.97	1.01	1.15	1.09
United Kingdom	1.62	1.49	1.54	1.53	1.43	1.38	1.33

Across the board every EU country has closed the gap in GDP/person with the United States since 1950. This means in every country their economic growth has exceeded that of the US over this time period. And all this with a massive welfare state that gives people peace of mind. And the growth is more egalitarian.

Look at Greece. In 1950 the American is making more than 5 times what they are making. Today? A mere 1.5 times. They are killing us. Look at Austria, Spain, Portugal. They've made enormous gains. How can someone looking at this conclude that a large welfare state is detrimental to economic growth?

HP is loathe to question consensus and expert opinion. He has limited time and wants to learn in an efficient manner. The problem is this leads to erroneous views. Further studies which build on that prior erroneous knowledge will be time wasted. I say in the case of economists checking the claims of experts is an efficient use of time.

Update

Here's the same data but in chart format. Even easier to read. It's interesting to note the rapid improvement in Europe from 1950 to 1980. It flattens a bit from 1980 but EU seems to still be gaining. Just more slightly. Click to enlarge.

The Real Agenda of the Deficit Hawks

One thing is for sure. The deficit hawks have been very successful at making the deficit a top priority in Washington. There wasn't too much complaining about it by the neocons when it was being created by Reagan, Bush I, and Bush II. In the wake of the worst economic downturn since the Great Depression we finally have a Democratic President that's acting like a Republican and running up the deficit. So finally it's time to talk about blocking efforts to raise the debt ceiling, despite the fact that this could lead to economic catastrophe. It's time to think about failing to deliver Social Security checks. It's time to consider the austerity measures that have worked so well in Africa, Latin America, and Haiti. In fact these austerity measures are now imposed on the East Asian tigers. And their formerly rapid economic growth has slowed, particularly in South Korea and Taiwan. They've been forced to accept austerity in wake of the 1997 East Asian banking crisis.

But OK, let's say they are right and we need to get this deficit under control. There's three obvious ways to do it.

1-Raise taxes on the wealthy. Trickle down economic theories have failed. The theory involved a two part process. First you see to it that the rich have more money in their pockets. You then look for them to invest which leads to jobs and wealth for everyone else. As Rush Limbaugh points out, he's never been offered a job by a poor person. So we got the first part. Plenty of money in the pockets of the rich. The second part never materialized. Corporations are sitting on tons of cash. They aren't investing it. That's their choice and what we might expect them to do. But what this means is taxing some of that won't affect job creation much. So the left supports this policy change.

2-Reform our health care system to where it is more like what exists in the rest of the industrialized world. If history is a guide we should expect about half the cost and much improved outcomes. Medicare is the largest single cause of our deficit problems. Cut our health care costs in half and the deficit is gone. The left supports this policy change (though Obama blocked it).

3-End our various pointless wars. Greenwald has some excellent points in this regard. I can hardly keep track of how many wars are going on right now. I see no point in Afghanistan or Libya. This is some really expensive stuff. Right now ending the wars wouldn't entirely wipe out the deficit, but it would go a long way. The left supports this policy change (though obviously Obama does not).

Your typical Republican opposes all three of these. And yet he pretends to care about the deficit. And that concern is only expressed when a Democratic President is in charge. So I think we can dismiss Republican concern with contempt as purely faux outrage and concern.

But of course it's not just Republicans. Obama wants to let the Bush tax cuts expire, so he supports point 1 above. But as far as spending cuts, it's not the obvious (2 and 3). He wants to cut Social Security expenditures. Maybe Krugman is right. They don't really care about deficits. What they want to do is dismantle the welfare state.

Economics Is Not Science

I watched an interesting lecture from Chomsky recently. Distorted Morality. It's not about economics, but about history. But I wonder if history is a lot like economics in a certain way. Being non-scientific the professional historian is not constrained to reject his intuitions or biases the way the scientist is. The scientist has methods that more oblige him to accept even uncomfortable truths. I think the economist is more like the historian.

Apparently in 1985 a poll was conducted of newspaper editors on what the most important story of the year was. They decided it was terrorism, particularly terrorism in the Middle East.

Chomsky first defined terrorism, then he asked us to consider the major terrorist events of the year. There were three that he says were way out front in terms of their severity and extent. They were as follows:

1-A bombing near a mosque in Beirut. Apparently ordered by the CIA it was a car bomb timed to go off as people left Friday prayers. It went off as planned and was devastating. Babies in beds far away were killed. Most of the victims were women and girls. The target was not one of the victims. 80 were killed.

2-The so called "Iron Fist" operations in occupied Southern Lebanon by Israel. These were just attacks on what Israel called terrorists in Lebanon which Israel was occupying despite a ruling from the Security Council to withdraw.

3-An Israeli bombing in Tunisia. Israeli attacks are with US weaponry. In the case of Tunisia, this was a US ally, so the US complied by failing to warn them and withdrawing the Sixth Fleet. The UN would immediately condemn the act as that of aggression, the supreme international crime (the US abstained).

But the AP in their discussions of the lead story of 1985 did not see fit to mention any of these terrorist actions. Instead they pointed to two other incidents.

1-The hijacking of the cruise ship Achille Lauro in which the disabled Jewish American Leon Klinghoffer was killed. This incident was said by the hijackers to be retaliation for the incident in Tunisia.

2-The hijacking of TWA flight 847 in which a US Navy diver was tortured and murdered.

Now, to me this is in a sense astonishing. The major terrorist events of the year clearly are American (Israel's actions aren't possible without American backing). Expert opinion (the leading members of the journalistic class, which are like the makers of history) is able to conclude that terrorism in the Middle East is the lead story of the year. Not because our country was responsible for so much terrorism. But because two Americans were killed in two separate incidents.

US terrorism is invisible. Invisible to the experts. And it's not like these things are being hidden. It's not difficult to determine what the major terrorist acts were. The experts still fail to see them and draw the proper connections.

What's going on here? One thing is obvious. These experts have incentives to see our government's actions in a favorable light. And there are no scientific constraints to prevent them from accepting a preferred opinion. It's not like you can do repeatable tests. There are not a lot of predictions to be confirmed. So given that they lack scientific constraints they are now free to indulge their incentives. And those incentives seem to just overwhelm them. The real world facts don't change anything.

History is like that generally. I happen to be persuaded of the view that Jesus Christ was probably a mythical character. I can't have a whole lot of confidence in that view because ancient history is not an exact science. But I've read related books. I've searched for material that rebuts the mythical arguments. I find that they don't really address the key issues. The VAST bulk of the rebuttals are like the following: Historians do not see it that way.

That's true. But like I say, history is not science. In science I can make non trivial predictions and compel unwilling people to accept a position even if they have a preference against it. This is precisely what happened regarding the Big Bang Theory. The scientific community was generally predisposed against it. Big names advocated a steady state model. But the predictions and testing were compulsory.

So consider the field of economics. Once again it's not a science. But this time, unlike the lead story of terrorism in 1985, the facts are not right on the surface. If the historian can so easily ignore reality when the facts are easy to see what should we expect of the economist? His response to biases and incentives will be even worse. Because tests can't be controlled predictions can never really be confirmed.

So let's take supply side economics. If you give rich people more money they'll invest, create jobs, and the rising tide lifts all the boats. Let's cut regulation, cut taxes, give the rich more and see how it goes. And so we tried it. What happened? You couldn't ask for a bigger colossal failure. We got the tons of money in the pockets of the rich part. That other part where benefits are enjoyed by everyone else? Didn't happen.

But that's OK says the neoliberal. Maybe we didn't de-regulate enough. Maybe we didn't cut taxes enough. Let's double down says the tea party crowd. Let's do it even more. You can't be sure it didn't work because you can't control for every variable.

HP is kind enough to share what expert opinion is on economics. The key to the success of places like South Korea has been neoliberalism, says HP. All of this is so obvious and such a standard position amongst economists that HP has difficulty even talking with me about it. If you're going to deny this you might as well deny global warming. It's very difficult to even bother to take the time to talk with flat earthers and 9-11 truthers.

Sure, I deny that South Korea followed the neoliberal model. But to do so HP is quick to point out that I must rely on heterodox economists not the mainstream ones. Like the South Korean economist Ha-Joon Chang.

But then look at the facts Chang puts on the table. He did grow up in South Korea (now he teaches at Cambridge). He tells us that South Korea had aggressive restrictions on imports. That's a radical violation of neoliberal principles. They put restrictions on citizens that attempted to invest overseas rather than in internal South Korean companies. The penalty was kind of severe. Death. They would frequently intervene in company affairs, taking over companies, sometimes firing the management team, then restructuring the company and sometimes turning it back over to market forces. They would acquire foreign currency and use it for the purchase of only one type of goods. Technologically advanced industrial products. Using that money to even buy foreign cigarettes was illegal.

Chang isn't mainstream!! OK. Where is he wrong on the facts? Are these claims he makes all lies? HP doesn't even try to deny the facts. Chang is out of step with orthodoxy. That's what matters.

Expert opinion does matter. I'm not saying it doesn't. I'm also not saying that my own economic conclusions aren't subject to this defect. For instance you could point to the fact that the US economy was subjected to Keynsian stimulus following the recession and you could say it doesn't seem to have resolved things and I can always say the stimulus wasn't big enough.

The point is economics is not science. In science we have better means of overriding a bias. In economics we don't. So trusting a scientific consensus is different from trusting an economic consensus. The economic consensus matters less. Therefore I am justified in relying more on my evaluation of the evidence in the case of economics than I would be in the case of a science, like global warming. For our expert journalistic class it seems they miss things even when it should be obvious. Economists are similarly unconstrained by scientific methods. They should be viewed similarly.

Rethinking Social Security

At the risk of losing my left wing credentials I heard right wing criticism of Social Security recently that seems to make a bit of sense to me. I'm shocked frankly that my source is speaking what appears to be truth, but maybe that happens sometimes.

So I'm listening to Christian radio and it's Dave Ramsey. I know he espouses standard Republican talking points on economics. He's done it before. So he takes a written question from a listener that wants his opinion on Social Security.

"Apic Fayle" says Dave in his southern accent. All right, let's hear it. "If you took the money placed in Social Security and just put in in a jar under your bed you'd get a higher payout in your retirement than you do with the current system. Or put it this way. Let's say the government let you keep 2% of the contributions. We contribute 15% today, so let them keep the 13% and squander it like government tends to do. You just get the 2%. If you invested that money and got the kind of return that is pretty typical you'd get more money from that tiny savings than you would when you retire from Social Security. What a piece of crap system."

He went on to criticize Norway and Sweden and talk about how socialism generally sucks. That was all BS. But leaving that aside I knew how I'd title my next blog post. "A Series of Lies from Dave Ramsey". I'm going to do something nobody presently listening to this station has ever done. Something nobody listening to right wing radio ever does. I'm going to look it up. I'll put my findings here and once again encourage right wingers to stop being so stupid and gullible.

I got home and went to dinkytown.net. They have a bunch of financial calculators. It's a pretty useful website. Here's a calculator for estimating your Social Security benefits and here's a calculator for estimating retirement income from savings.

In both cases I start the contributions at age 22 and end at 67 (full retirement age). I take something close to the median family income ($50K). A 2% savings is $1000 per year. I assumed a 10% rate of return, which is maybe a bit aggressive, but let's give Dave the benefit of the doubt. Also 30 years of income.

What I get is SS pays out $86K/yr or $7166/mo. Savings? $7852. What the? And this is assuming married, which produces a larger Social Security payout. First of all I heard this on Christian radio. Second it's from a right winger. Third it's kind of sensational. I'm shocked. It looks like he's right.

What about this claim that if you just put the money in a jar you'd be doing better. I can't quite reproduce that, even switching Social Security to unmarried. But it's not all that far off. The calculator doesn't allow me to put a 0% rate of return, so I just used 1%. SS unmarried pays $4790/mo. Savings is $2766. It's not totally out of the ball park. Maybe Dave is making some different assumptions.

I've heard a lot of bogus criticism of Social Security. The program is in dire straights, unable to meet obligations? Not really. There are much fewer workers for every retiree today? That's true, but nothing to be too concerned about. Government is inefficient at doing this kind of thing with their bureaucracy and waste. Not true.

Well this one seems kind of legit to me. It really doesn't pay out much when you consider how much you put in. What's going on fellow lefties?

Here's what is now clear to me. Social Security is not a savings plan. Savings takes advantage of compound interest rate returns. That's an extremely powerful force. Social Security isn't like that. It's a straight transfer of money from younger earners to the more elderly that are less able to earn money. Given that it can't enjoy growth like an investment how can it possibly compete with a real savings plan?

It was not a bad idea at the time. Think about what happened. The Great Depression wiped out people's savings. If you're young in 1929 you have problems. If you're old you have HUGE problems. You're on the street and maybe starving. So the government put a program forward. We're going to take some money from some younger people more capable of coping with the crisis and better able to make money and we're just going to give it to old people. But don't worry. You'll get it back. When you are old we'll do the same thing to the young people alive at the time. So you're saving a lot of old people's lives, but we'll get it back to you.

Kind of makes sense to me. Except for one thing. It's permanent. It's like we're paying for the Depression forever.

This is not a good way to save for retirement, right? Running the numbers at Dinkytown again I can see that if a guy made minimum wage his whole life (who's going to make minimum wage their whole life?) and got to save 15% of his income he'd still get in retirement the same amount someone making $50K today would get from Social Security. So obviously if the median income earner can save 15% he's going to live like a rock star.

But what that means is that people earning money today will not get their money right back as promised. They'll have to pay for the elderly today and maybe if you are kind of phasing out the program then they won't have the young people paying for them. But on the other hand with the phase out suppose they get to save 2%. And the phase out still pays them a reduced amount. They're actually making more than they would with Social Security alone. And yet future generations are saving 4% or 6%. And they get to be much better off. I hate to say it, but a phase out seems to make some sense in light of these things.

Ben Stein Supports Tax Hikes for Rich

For some reason a lot of right wingers cling to this myth that tax reductions have actually generated additional revenue for the government. Right wing lunatic Laura Ingraham seems to think so, but even right wing economist Ben Stein knows better than that. Here's an excerpt from their exchange on the O'Reilly Factor.

INGRAHAM: No, no -- do you -- do you not agree that when you tax the rich you ultimately end up over time reducing much of the revenues that would come in for their spending that they make, their hiring and companies where they hire. I mean, a lot of this also is small business owners.

STEIN: No, I don't agree with that. I -- I don't agree with you, with all due respect.

INGRAHAM: Well -- that they spend less?

STEIN: You are a woman of -- well you're a woman of extraordinary intelligence but the data is very clear that we had higher rates of economic growth in the 40s, 50s, 60s and 70s when we had higher taxes. The era of very low Bush 43 taxes has correlated with a low period in productivity growth and a low period of economic growth. You cannot correlate low taxes with high productivity. It just can't be done.

You can oppose tax hikes if you like. What you can't say though is that there is good evidence that either the Reagan tax cuts or Bush tax cuts generated additional tax revenue. Take a look at this table of tax receipts by year. Tax receipts clearly fell off immediately after the Bush tax cuts, and the bounce back was small. Growth in tax revenues was small under Bush. Reagan is a similar story, though not quite as bad as Bush. Tax revenue increases were much higher under Carter and Clinton. This is not to say that tax cuts can't increase revenue. And it's also not to say that the Bush tax cuts were the cause of the reduction in revenue. My point is the data don't show that tax reductions resulted in an increase in tax revenue.