Comment Of The Day: “Comment Of The Day: ‘Sunday Ethics Warm-Up, 1/12/2020′” (Economic Data Thread)

This Comment Of The Day covers a wealth of ethics issues, including the ancient ethics debates over what is a fair share on societal wealth and who decides when someone has “enough” wealth. It also is an Ethics Alarms first: Chris Marschner’s Comment of the Day is on his own Comment of the Day!

And here it is, his Comment of the Day on his previous Comment of the Day on the post, “Sunday Ethics Warm-Up, 1/12/2020: Broken Ethics Alarms, An Ethics Conflict, And “Who Are You Going To Believe, Me Or Your Own Eyes?”

The point I was making was that people use economic data to illustrate all kinds of things. Typically they use charts and graphs to illustrate a point THEY want to make. The values within those charts and graphs need full examination before drawing a conclusion. For example, Reagan dropped the unemployment rate overnight by including the military in the labor force. In that case the number employed went up and the labor force went up as well. Given that the unemployment rate is the number unemployed/labor force if the denominator rises the UE rate falls.

Conversely, between 2008 and 2012 the unemployment rate showed a downward trend because the Labor force participation rate (LFPR) shrank and not because more people got jobs. People gave up looking for work so they were no longer treated as unemployed and the number of people working grew relative to the LFPR. Since 2016 the LFPR has been growing and the UE rate is dropping. That means that there are more people are working. That is a good thing because it puts upward pressure on wages.

For some, higher wages have overtaken what is known as an individual’s reservation wage. The reservation wage is the minimum amount needed to get a person to accept the offered job. Unfortunately, we have a great number of people whose true reservation wage has been distorted in both psychological and real terms. Reservation wages have been growing because of the growth in governmental income maintenance programs. Imagine how many will decide to live only on Yang’s guaranteed $12K a year. Couple that $1000 a month with housing assistance, food stamps, childcare, Medicare, and WIC you can live quite well on the dole. Oh I know, Yang says he would replace all those other programs to fund his guaranteed minimum income. Name a program that ever went away. We just layer one atop another.

These are not my opinions but well established facts and fundamental economic theory that is taught in first year Econ classes. I know because I taught those courses for 20 years.

I did not put any words in Bloomberg’s mouth. In fact, the remark about capping income was based on comments President Obama made regularly about people at some point have enough money. Many on the stump right now are mimicking that sentiment. The government can effectively cap incomes through tax policy . Currently, there are two rationales for increasing taxes on the uber-wealthy that have nothing to do with correcting income differentials: First is that they are not paying their fair share; the second is that they have more money than they can ever spend in a lifetime.

Let’s address the first sentiment. I challenge anyone to define fair share. Tax rates should reflect what society determines each quintile should pony up to fund public operations. If we say that the one percenters should pay 20% of the total tab then the rate should reflect that amount. If overall taxable income rises then the rate should fall and vice versa. But to be fair since that is the crux of the matter, shouldn’t the one percent get a larger say in how big that total tab will be? Should the top 20% of income earners that pay about 80% of all the government’s costs have 80% of the say in how much that will be; to be fair of course? That is not how it works. If we are going to demand fair share for payment then we must also demand a fair share in the overall decision process and not simply let the majority that have more votes determine the size of various entitlement programs.

On the second rationale; “they have enough already”. This is a function of envy. What someone else has is irrelevant to me if the income was legitimately earned. This philosophy of “having to much is unfair” permeates far too many. What is the difference between a street gang that mugs you because you have something they want and a electoral mob choosing candidates that will strip you of your wealth because you have too much in their eyes. Elizabeth Warren and Bernie Sanders have pledged to do just that.

As we go down the road of demanding other people pay taxes so we don’t have to, many will argue that corporations make money from the roads and bridges that tax payers fund. I disagree. Consider that the actual benefits accrue to consumers. Businesses are value creators. They make things consumers want. Consumers trade their dollars for things that make their lives better. Does an iPad sitting on the shelf at BestBuy deliver any satisfaction to the stockholders of BestBuy? Of course not. Without roads and transportation infrastructure most people would starve to death, find income generating suitable work that best suits their talents, be unable to download the latest video because they would have to go to the factory wherever that is (if it exists) to obtain products to do so. You also need to consider that corporations are inanimate beings. The income earned winds up in someone’s household and unless the cash is hoarded in a mattress it becomes someone else’s income.

In addition most of the funds that pay for education and first responders are locally derived. Given that the average cost to fund one kid in public school is about 12 grand and that property taxes pay for education but a homeowner in MD with a property with an assessed value of 200,000 only pays about $4,000 annually in property taxes. Business taxes, whether they are property taxes, inventory taxes, franchise taxes and so many more at the local level subsidize virtually every citizen. So when you see that mega corporation eyeballing your town for expansion you need to realize that they will be providing you with more money for education, more opportunities for income growth for everyone, and more revenue that could lower everyone’s tax rate if constant yield is the law.

When I see charts and graphs being used to promote X or Y I know that they portray what the presenter wants to convey which may be factual but does not represent a true picture of reality.

12 thoughts on “Comment Of The Day: “Comment Of The Day: ‘Sunday Ethics Warm-Up, 1/12/2020′” (Economic Data Thread)

  1. GREAT COTD, Chris; makes it into my reference file!

    Not to switch gears too much, but I’ve been regularly reading a lot of Red States Are Net Takers/Blue States Are Net Makers posts (by giddy Lefties) in different places; your thoughts?

    • Without knowing what data they are using it is hard to know. If they include Social Security payments as transfers from makers to takers then it is possible but retirees on Social Security, a program they paid into, are hardly takers in the real sense of the word.

      My understanding is that the maker / taker difference is being measured by revenues collected versus expended on transfers. The methodology excludes expenditures for federal salaries for personnel or purchases.

      Florida is considered a red state but has a massive retired population collecting social security and incurring higher than average Medicare costs. It is very possible that Florida pays in less than it takes out at the federal level. More importantly, most of those retirees left their blue states to avoid high state taxes. Nonetheless it has no state income tax instead relying on sales taxes to fund government. One must also consider proximity to federal assets. I suggest that blue states often have higher levels of reliance on growing federal expenditures and will see higher wage levels among the professional classes because government expenditures do not necessarily consider if the expenditure is even necessary, does it create more value than any other option, and no one’s job is at risk when raises are demanded. Higher wage levels in the professional classes open up opportunities for lower wage service workers who flock to those areas and have taxes deducted from their paychecks.

      On the other hand Wyoming Nevada and other western states have substantial allocations of federal lands that generate limited revenues. Yellowstone, and Grand Teton Parks require significant resources so that all those from across the country have the ability to enjoy what those taker states have to offer. Relative to highly populated states red states have a smaller populations but the costs of maintaining the Interstates and other federal infrastructure assets in those states could easily help cause outlays to outstrip tax receipts. It might be more useful to measure the average quality of life in say California, New York, or Massachusetts. Another way to measure that is the degree to which income is distributed in Red states versus Blue states. The fact that so many are living on the streets in “blue” states or counties might suggest a real problem with income distribution in those areas.

      But here is the rub, if the data collectors review only receipts and transfers or even all spending and they do not consider actual realized revenues against those outlays the argument is skewed. Tax receipts reflect collections not what the government gets to keep. At the end of the day, some or even all the revenues collected could be refunded to taxpayers through various tax “breaks”. Many with children pay no taxes or even negative taxes through the EITC. Negative taxes are not budget items. Teachers, first responders, and other government workers are entitled to various tax breaks yet they cannot realize them until they file so measured receipts are always higher than realized income. Further, because each person tax bill actually is different it is unlikely that anyone can measure exactly how much revenue the feds actually realize from each state. To know this it would require the IRS to publish the receipts and actual tax bills recognized annually. I do not believe they do this. On top of that it will be necessary to subtract all expenditures for salaries, benefits and other costs of federal activities in those areas.

      Just some ideas on this subject. I have not studied it carefully enough because such arguments are relevant in a republic. We don’t sit around saying well San Francisco had a big earthquake or Southern California is burning down so why should I have to pony up. National economics requires that interstate borders are invisible and irrelevant.

      • You hit upon a point I will repeatedly make. The left loves to attack income inequality, yet wherever they are in charge, the income inequality is vastly worse. California simultaneously has the worst poverty in the country and the most billionaires. Nobody there seems to have the self analysis to see their system creates more poverty than the conditions in those selfish, evil conservative states.

    • I once did a little digging in reference to that claim. Figuring that people crowing about that statistic are assuming it is caused by mooching conservatives who love themselves some government benefits, I did some data mining on the biggest welfare programs: Medicaid, TANF, SNAP, and rental assistance. On a per capita basis, California is in the top 10 (if not top, it’s been a while) in every category, along with a number of other blue states.

      So, excluding all the less glamorous government spending, like military bases, highways, and all the other millions of expenditures, blue states are, not surprisingly, as much, if not more, dependent on federal welfare programs.

      Not that it will be widely disseminated or ever change anyone’s mind about anything, of course.

  2. I agree. I will freely admit that I have used content here – both from Jack’s posts and from many of you who comment – over and over again in conversations. Thanks so much!

    • Interesting that you mention “fairness in economics”. The latest Steyer ads here in Iowa have him referring to “economic justice”. I assume that this is something similar to Yang’s “$1000 a month to everyone”…?

      • “I assume that this is something similar to Yang’s ‘$1000 a month to everyone’…?”

        “The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money”–Alexis De Tocqueville

        The receiving public is not the same as the contributing public, am I right?

          • It’s a classic! My-o-my what might a modern day De Tocqueville might observe?

            But jeepers, Joel, now you’ve done gone-n-reminded me of one of my glaring…um…shortcomings; stacks of books that need to be cracked.

            That’s in addition to the list of titles (no small number suggested by the talented Mrs. Q) that lie upon my desk…mocking my procrastination.

            But heck, we don’t have to talk about that now….

            • Exact same situation here with regards to books. I re-started Unger’s biography of James Monroe on Tuesday and am looking for a good biography of Van Buren. I have more time to read right now…last Monday morning I was called into the HR office and informed that my job of (nearly) 18 years had been eliminated. I have no idea why – “restucturing” was the cliche they gave me, and that’s what the 5 other unfortunates probably heard as well. Thirty minutes later, I was driving home unemployed (but with a very fair severance).

              So, in this downtime, it’s time to get a bit caught up.

  3. UCLA Professor of Economics, Lee Ohanian, has some “fair” questions about “fair share.” He asked, “Do the rich pay their fair share of taxes? It’s not a simple question. First of all, what do you mean by rich? And how much is fair? What are the rich, whoever they are, paying now? Is there any tax rate that would be unfair?”

    It may feel good to take ever more money from the top earners, but it certainly doesn’t do good, and it surely isn’t fair.

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