OK, I just saw another economist interviewed on the news last night
who repeated the same old economic "truth" that all economists seem to
believe in: taxes are recessionary. He said it in the context of a
discussion of the weak economic recovery that seems to be starting in
the US. At the same time as the economy is recovering (GDP is staring
to grow) the deficit is increasing. It was in this context that this
economist said that, of course, tax increases (to reduce the deficit)
are out of the question because that would hurt the recovery.
I want to know why in the world to economists believe this? They must
know that the modest tax hike implemented by Clinton (in 1993) had no
adverse effect on the economic recovery happening at that time.
Moreover, there is data, readily available at the Federal reserve
economic data site(http://research.stlouisfed.org/fred2/), that should
prove to anyone with a spreadsheet that taxes and growth are, at
worst, unrelated and at best positively related (increased taxes being
associated with increased growth).
Here is a little analysis I just did on the relationship between
annual growth rate (dGDP/dt), annual Top Marginal Tax Rate and annual
unemployment rate. I only had unemployment rate data back to 1947.
Here are the relationships, expressed as correlation coefficients.
The correlations are not huge; indeed, the second two are not even
statistically significant. But I don't see how any economist could
conclude from these correlations that taxes are recessionary. And all
economists must be familiar with this data, right? It's pretty basic
stuff. The first correlation shows that annual growth rate (since
1928) has been _positively_ related to the top marginal tax rate that
year (the top rate has been as high as 94%; it's now 35%!). In other
words, the observed growth rate of GDP increases when the tax rate
increases; the observed relationship between taxes and growth is
_non-recessionary_. Of course, this correlation does not mean that
high taxes _cause_ high growth. But it seems to me that one is
unlikely to conclude, based on this observed relationship, that high
taxes cause low growth (recession). Nothing like that is observed.
The correlation between growth and tax rate for the period starting
from 1947 (after the depression) is smaller than for the period that
includes the depression, but still positive. Since the correlation is
not significant, the best one could conclude from this is that there
is _no_ relationship between taxation and growth. Yet economists
persist in believing (and arguing) that taxes are recessionary. What
gives?
I guessed that perhaps the economists mean that taxes are recessionary
in the sense that increased taxes lead to increased unemployment. So I
got the unemployment data (from 1947-2008) and correlated that with
the tax data and found (to my surprise) that the correlation was
_negative_; increased taxes are associated with decreased
unemployment. This negative correlation is not significant, but that
just means that one can't conclude that there is really any
relationship between taxes and unemployment. Again, taxes are, at
worst, irrelevant (unrelated) to unemployment or negatively related
(increased taxes are associated with decreased unemployment).
This is what the data say. Why in the world do economists believe the
opposite of what their data says? I think it must be because they
trust their theories more than their data, which is rather amazing,
considering that economists want to consider themselves scientists.
Anyway, here's what might be a relevant aphorism for these economists
from one of our great American poets:
Experiment escorts us last --
His pungent company
Will not allow an Axiom
An Opportunity
-- Emily Dickinson
OK, I just saw another economist interviewed on the news last night
who repeated the same old economic "truth" that all economists seem to
believe in: taxes are recessionary. He said it in the context of a
discussion of the weak economic recovery that seems to be starting in
the US. At the same time as the economy is recovering (GDP is staring
to grow) the deficit is increasing. It was in this context that this
economist said that, of course, tax increases (to reduce the deficit)
are out of the question because that would hurt the recovery.
I want to know why in the world to economists believe this? They must
know that the modest tax hike implemented by Clinton (in 1993) had no
adverse effect on the economic recovery happening at that time.
Moreover, there is data, readily available at the Federal reserve
economic data site(Federal Reserve Economic Data | FRED | St. Louis Fed), that should
prove to anyone with a spreadsheet that taxes and growth are, at
worst, unrelated and at best positively related (increased taxes being
associated with increased growth).
Here is a little analysis I just did on the relationship between
annual growth rate (dGDP/dt), annual Top Marginal Tax Rate and annual
unemployment rate. I only had unemployment rate data back to 1947.
Here are the relationships, expressed as correlation coefficients.
The correlations are not huge; indeed, the second two are not even
statistically significant. But I don't see how any economist could
conclude from these correlations that taxes are recessionary. And all
economists must be familiar with this data, right? It's pretty basic
stuff. The first correlation shows that annual growth rate (since
1928) has been _positively_ related to the top marginal tax rate that
year (the top rate has been as high as 94%; it's now 35%!). In other
words, the observed growth rate of GDP increases when the tax rate
increases; the observed relationship between taxes and growth is
_non-recessionary_. Of course, this correlation does not mean that
high taxes _cause_ high growth. But it seems to me that one is
unlikely to conclude, based on this observed relationship, that high
taxes cause low growth (recession). Nothing like that is observed.
The correlation between growth and tax rate for the period starting
from 1947 (after the depression) is smaller than for the period that
includes the depression, but still positive. Since the correlation is
not significant, the best one could conclude from this is that there
is _no_ relationship between taxation and growth. Yet economists
persist in believing (and arguing) that taxes are recessionary. What
gives?
I guessed that perhaps the economists mean that taxes are recessionary
in the sense that increased taxes lead to increased unemployment. So I
got the unemployment data (from 1947-2008) and correlated that with
the tax data and found (to my surprise) that the correlation was
_negative_; increased taxes are associated with decreased
unemployment. This negative correlation is not significant, but that
just means that one can't conclude that there is really any
relationship between taxes and unemployment. Again, taxes are, at
worst, irrelevant (unrelated) to unemployment or negatively related
(increased taxes are associated with decreased unemployment).
This is what the data say. Why in the world do economists believe the
opposite of what their data says? I think it must be because they
trust their theories more than their data, which is rather amazing,
considering that economists want to consider themselves scientists.
Anyway, here's what might be a relevant aphorism for these economists
from one of our great American poets:
Experiment escorts us last --
His pungent company
Will not allow an Axiom
An Opportunity
-- Emily Dickinson
Best
Rick
--
Richard S. Marken PhD
rsmarken@gmail.com
www.mindreadings.com
I want to know why in the world to economists believe this? They must
know that the modest tax hike implemented by Clinton (in 1993) had no
adverse effect on the economic recovery happening at that time.
That is empirical.
Moreover, there is data, readily available at the Federal reserve
economic data site(Federal Reserve Economic Data | FRED | St. Louis Fed), that should
prove to anyone with a spreadsheet that taxes and growth are, at
worst, unrelated and at best positively related (increased taxes being
associated with increased growth).
Correlation does not imply causation. You must not discount structural and causal factors. If tax rate was positively correlated with economic growth rate (taxes tend to be increased when growth is high, and decreased or remain the same when growth rate is low), then there would be a correlation between taxes and growth; even if growth rates were not affected by taxes at all. This is of course a tautology, but is true because taxes generally would not be increased during a recession if it was believed that doing so would slow growth; hence tax increases would only occur in years of high expected growth.
You have to demonstrate that the decision to increase taxes is independent of current or projected economic growth in order to conclude that increasing taxes would in fact increase growth rate.
Also, taxes remove money from people who would otherwise acquire that money and hence decreases the amount of money people have available to consume goods and services. Taxes also decrease the amount of capital that persons have available for investment and activities which generate economic growth.
Taxes should only be raised if doing so would be better than the alternative. In this case the tax increase would be used merely to offset deficient spending and hence would not be used to finance additional goods or services provisioned by the government. The net result is a decrease in income to households without any increased consumption or provision of goods and services. It cannot be claimed that consumption of goods and services and investment activities have no relation to the money available to households.
Also, if the national debt is not paid off with a tax increase then it is likely to be isomorphic to an increased tax rate; we will be taxed implicitly for the deficient spending by possible devaluation of the US dollar and hence a decrease in purchasing power of the USD (inflation).
Also, I do not believe that data matters. The bailouts which were made were in no way informed by data and so there are few reasons to believe that any tax increase or decrease should or would be so informed by evidence. Policy decisions will continue to be made in the existing manner.
I don't see how any economist could
conclude from these correlations that taxes are recessionary. And all
economists must be familiar with this data, right?
Econometrics is the study of economic data.
Your time series has very little to do with economics; which uses axiometric mathematical assumptions to model the relationships between the components of an economy (firms, individuals, nations, governments etc...). When an economist says that increasing taxes to pay debts is recessionary, he is hopefully making a statement about the mathematical implications of arithmetic rather than anything concerning historical data. That is to say, an economist would assert that increasing taxes decreases the income households receive and therefore reduces the capacity of such households to purchase goods and services (food, healthcare, automobiles, homes, entertainment, electronics ... etc) which fuel economic growth.
And all
economists must be familiar with this data, right? It's pretty basic
stuff.
The data does not concern economists. Data proves nothing. Nothing can be concluded from the data because causality does not imply correlation and there is not generally a good way to sort out structural causal factors to within statistical significance, given that we only have one economic time series to study. Even if correlation is established with some statistical significance, this would not imply that increasing taxes would not result in a decrease in GDP growth rate; because correlation does not imply causation. Deriving a nice way of determining causal relationships from economic time series is worth a Nobel Prize in economics; the problem is still very much unresolved.
Also, very idea of statistical significance only exist with respect to some distribution which is being sampled from. What does it mean to sample from a distribution of economic time series if we only have one of them?
The first correlation shows that annual growth rate (since
1928) has been _positively_ related to the top marginal tax rate that
year (the top rate has been as high as 94%; it's now 35%!). In other
words, the observed growth rate of GDP increases when the tax rate
increases;
If we increased taxes back to 94%, our travel industry would boom as our wealthy take a permanent tax vacation in the Caribbean.
If taxes caused growth (a premise which is necessary to conclude that an increase in taxes would result in increased economic growth) then a 99% tax would produce more economic growth than a 60% tax and a 100% tax would increase GDP more than a 99% tax, and further a 115% tax (paying 1.15$ to the government for every dollar earned) would produce even more GDP growth than a 100% tax! By induction GDP growth is maximized in the limit of tax rates approaching the cardinality of the natural numbers.
(Homework Problem: If GDP growth rates are a monotonously increasing function of income tax rate and the cardinality of the set of Natural numbers is greater than the cardinality of the Real Numbers then would a uncountably infinite income tax rate produce greater GDP growth than a merely countably infinite tax rate?)
It should also be noted that if tax rate growth are less than per capita income growth, then the capital available to households should still increase; at-least until tax rates hit 100%. In the American Academy of Actuaries publication "Contingencies" a few months back, there was a chart of historical US tax rate that shows that we are on our way to 100% taxation. We should just give up the American experiment in "capitalism" and continue to allow our personal income to be further diminished by taxation and diverted to which ever industry group is most effect at lobbying congress.
Moreover, there is data, readily available at the Federal reserve
economic data site(http://research.stlouisfed.org/fred2/), that should
prove to anyone with a spreadsheet that taxes and growth are, at
worst, unrelated and at best positively related (increased taxes being
associated with increased growth).
Correlation does not imply causation.
Of course. And it’s also true that causation does not necessarily imply correlation (as was discussed here in an earlier thread). But I was not presenting the data to prove (or disprove) causality. I presented the data to show the relationship between taxation and growth that is actually observed. What puzzles me is, given this observation, how could economists come to the conclusion that taxes reduce growth? Is it that one can only account for this data and some other data as well (of which I am not aware) with a model that has taxes reducing growth? I just don’t get it. It’s seems to me that seeing data like this and then concluding that taxes are recessionary is like seeing that the mass of an object is unrelated to the volume of water it displaces and then shouting “Eureka, the greater the mass of an object the greater the amount of water displaced”.
You must not discount structural and causal factors. If tax rate was positively correlated with economic growth rate (taxes tend to be increased when growth is high, and decreased or remain the same when growth rate is low), then there would be a correlation between taxes and growth; even if growth rates were not affected by taxes at all. This is of course a tautology, but is true because taxes generally would not be increased during a recession if it was believed that doing so would slow growth; hence tax increases would only occur in years of high expected growth.
Sure, there are all kinds of possible explanations for what is observed. But I still can’t see how, based on these observations, one could conclude that increasing taxes actually leads to decreased growth (and increased unemployment). I’m not saying, by the way, that taxes do (or don’t) lead to growth and unemployment; I just want to know why economists are so sure that taxes are recessionary. Based on the observations, I can’t see how one would get there. Do you know how they get there? Maybe it’s something like what happens in our closed loop tracking studies where the correlation between input (cursor movement) and output (mouse movement) is typically near zero even though there is known to be a true causal connection between input and output. We solve the paradox with a model that explains the observation; the model shows that the low correlation between input and output is what is expected if the causal connection between input and output is part of a high gain negative feedback loop. Is this what is going on with the tax-growth relationship?
Also, taxes remove money from people who would otherwise acquire that money and hence decreases the amount of money people have available to consume goods and services. Taxes also decrease the amount of capital that persons have available for investment and activities which generate economic growth.
This is all theory. And it is a theory that would predict what economists expect to see; a strong negative relationship between taxes and growth. But that’s not what is observed so this theory-- all on it’s own anyway – can’t be right.
Taxes should only be raised if doing so would be better than the alternative.
But that’s your recommendation based on a theory that is contradicted by the data.
Also, I do not believe that data matters.
Wow. Then I guess we really live in different worlds. If data doesn’t matter then my theory is as good as yours, and my theory says that increasing taxes (progressively) is good for the economy because it redistributes wealth to the aggregate consumer and brings aggregate consumption into line with aggregate production. But I won’t believe my theory any more than I believe your until I have a model that can account for all the data that has been collected and that is collected in the future.
That is to say, an economist would assert that increasing taxes decreases the income households receive and therefore reduces the capacity of such householdYour time series has very little to do with economics; which uses
axiometric mathematical assumptions to model the relationships between
the components of an economy (firms, individuals, nations, governments
etc…). When an economist says that increasing taxes to pay debts is
recessionary, he is hopefully making a statement about the mathematical
implications of arithmetic rather than anything concerning historical
data.
That’s what I was afraid of. To the extent that this is true then it makes economics a religion and I’m afraid I’m not into religion (except as a literary experience).
The data does not concern economists. Data proves nothing.
I find this startling. I thought this might be true but I was hoping it wasn’t. Thanks for your candor, though.
Nothing can be concluded from the data because causality does not imply correlation and there is not generally a good way to sort out structural causal factors to within statistical significance, given that we only have one economic time series to study.
The way we sort out causality in PCT (and science in general) is through modeling, like Kepler and Newton’s models of observed planetary motions (time series). And I would never suggest using only one time series as the basis for testing models. A successful model should be simple and should give a very close account of many data sets.
Deriving a nice way of determining causal relationships from economic time series is worth a Nobel Prize in economics; the problem is still very much unresolved.
Yes, what “determines” those causal relationships will be a successful model of the economy. And such a model should get a Nobel, for sure. But since there is no such model, it seems to me that economists should not act like they know the causal relationships that are involved in producing the observed relationships between taxation, growth and unemployment. And they are acting like they know these causal relationships when they say, confidently, that increasing taxes leads to decreased growth.
Also, very idea of statistical significance only exist with respect to some distribution which is being sampled from. What does it mean to sample from a distribution of economic time series if we only have one of them?
We always make decisions about statistical significance based on a single sample. That’s what statistical decision making is about; we assume that the sample is one of an infinite number that could have been drawn from a population (the population of all possible economic histories, in this case), derive the sampling distribution for the sample statistic (a correlation in this case) and then reject the null hypothesis if the probability of getting our sample value (correlation) is sufficiently improbable assuming the null is true.
If we increased taxes back to 94%, our travel industry would boom as our wealthy take a permanent tax vacation in the Caribbean.
That’s more theory.
If taxes caused growth (a premise which is necessary to conclude that an increase in taxes would result in increased economic growth) then a 99% tax would produce more economic growth than a 60% tax and a 100% tax would increase GDP more than a 99% tax, and further a 115% tax (paying 1.15$ to the government for every dollar earned) would produce even more GDP growth than a 100% tax! By induction GDP growth is maximized in the limit of tax rates approaching the cardinality of the natural numbers.
And still more theory.
(Homework Problem: If GDP growth rates are a monotonously increasing function of income tax rate and the cardinality of the set of Natural numbers is greater than the cardinality of the Real Numbers then would a uncountably infinite income tax rate produce greater GDP growth than a merely countably infinite tax rate?)
You wouldn’t necessarily get an “uncountably infinite income tax rate” with a “monotonously” (I’m sure you must have meant monotonically) increasing function; such functions can have asymptotes, can’t they?
Anyway, thanks for answering my question by confirming my suspicions. As I thought, economists are apparently convinced that taxes are recessionary because they think they should be, not because they are. The nightmare is that these people, who are so convinced of their “rightness”, have credibility with our leaders. Too bad.
Best
Rick
···
On Sun, Aug 23, 2009 at 9:25 AM, Brandon Smietanabjs35@buffalo.edu wrote:
Of course. And it’s also true that causation does not necessarily imply correlation (as was discussed here in an earlier thread). But I was not presenting the data to prove (or disprove) causality. I presented the data to show the relationship between taxation and growth that is actually observed. What puzzles me is, given this observation, how could economists come to the conclusion that taxes reduce growth? Is it that one can only account for this data and some other data as well (of which I am not aware) with a model that has taxes reducing growth? I just don’t get it. It’s seems to me that seeing data like this and then concluding that taxes are recessionary is like seeing that the mass of an object is unrelated to the volume of water it displaces and then shouting “Eureka, the greater the mass of an object the greater the amount of water displaced”.
I wanted to expand a bit on why I think this last analogy is apt here. It turns out that people assume (unless they have learned otherwise in a physics class) that water is displaced in proportion to its mass (weight). So if you show someone two graduated cylinders with equal amounts of water in then and then hand the person two metal slugs of equal size but different weight and ask which will cause the water level to go higher if you put one in each cylinder, the person will almost certainly say that the heavier slug will cause the biggest increase in water level. Piaget did exactly this study with kids of different ages. It turns out that young kids (younger than about 10 or so, I think) will cling to the belief that heavier weights displace more even after they are shown that both weights displace exactly the same amount. The younger kids (Like economists) can’t seem to give up their initial belief based on the data; they are puzzled by the observation but cling to the idea that weight must cause displacement. Older kids (some) do manage to see that weight is unrelated to displacement; and they might even get to the idea that it’s just the size (volume) that matters.
But the fact is that it’s very tough for people of any age (scientists included) to abandon their beliefs based on data. But it’s a reorganization devoutly to be wished.
Also, taxes remove money from people who would otherwise acquire that money and hence decreases the amount of money people have available to consume goods and services.
How does the tax money vanish? Does it not get used to pay for things such as public projects and debt financing, thereby putting as much into people's pockets as it takes from people's pockets? If it doesn't go back into the pockets of the taxpayers, just where does it go (assuming the government isn't running a surplus)? (I know, in the USA, a lot goes to pay the foreigners who financed the US economy for so long, but consider the question in a closed economy such as the world as a whole).
I grant that a lot more of the tax money paid out by the government goes into the pockets of the wealthy than into those of the poor, but that's a policy decision as to the distribution of tax rates, not a necessary aspect of tax in itself. Overall, if the government is running a balanced budget, does that not mean it pays out as much as it takes in? Isn't a dollar of tax equal to a dollar of payment to the taxpayer (though perhaps not to the same taxpayer -- more probably to a richer one)?
Why do people (maybe even some economists) talk as though a dollar paid in taxes simply vanishes? Simple-minded intuition suggests that an increase in tax rates, up to some optimum point, should improve the economic infrastructure, raising the quality of life overall, and should be followed by an increase in economic activity. But of course that's only theory. However you do say that only theory matters, and observation of what actually happens should not be allowed to intrude into discussions of economics, so perhaps I can be allowed my theoretical question.
How does the tax money vanish? Does it not get used to pay for things such as public projects and debt financing, thereby putting as much into people's pockets as it takes from people's pockets? If it doesn't go back into the pockets of the taxpayers, just where does it go (assuming the government isn't running a surplus)?
Bravo, Martin. Any time someone complains about "wasteful" government spending. I hear a complaint of "Why is the government paying that money to them instead of to me?" The money goes right back into the economy. The real arguments are about where it comes out and where it goes back in.
OK. So the reason that raising taxes improves the economy is because
it ensures that the money gets spent. What if instead of taxing a
percentage of income we just said: You can make as much money as you
want, but you have to spend it. If you don't spend it the government
will. No one is allowed to save more than a set amount. (The billion
dollar trust fund companies would be out of business.)
···
[From Bill Powers (2009.08.24.0905 MDT)]
Martin Taylor 2009.08.24.00.46 --
How does the tax money vanish? Does it not get used to pay for things such
as public projects and debt financing, thereby putting as much into people's
pockets as it takes from people's pockets? If it doesn't go back into the
pockets of the taxpayers, just where does it go (assuming the government
isn't running a surplus)?
Bravo, Martin. Any time someone complains about "wasteful" government
spending. I hear a complaint of "Why is the government paying that money to
them instead of to me?" The money goes right back into the economy. The real
arguments are about where it comes out and where it goes back in.
An interesting idea. It ought to call out those people who have been claiming that they need tax reductions to make them want to create business and jobs.
Best,
Dick R
···
----- Original Message -----
From: Shannon Williams verbingle@GMAIL.COM
Date: Monday, August 24, 2009 5:21 pm
Subject: Re: Got Data?
To: CSGNET@LISTSERV.ILLINOIS.EDU
[Shannon Williams (2009.08.24.1730 CST)]
OK. So the reason that raising taxes improves the economy
is because
it ensures that the money gets spent. What if instead of
taxing a
percentage of income we just said: You can make as much
money as you
want, but you have to spend it. If you don’t spend it the
governmentwill. No one is allowed to save more than a set
amount. (The billion
dollar trust fund companies would be out of business.)
[Shannon Williams (2009.08.24.1730 CST)]
OK. So the reason that raising taxes improves the economy is because
it ensures that the money gets spent. What if instead of taxing a
percentage of income we just said: You can make as much money as you
want, but you have to spend it. If you don't spend it the government
will. No one is allowed to save more than a set amount. (The billion
dollar trust fund companies would be out of business.)
That’s an interesting idea, but it wasn’t what I was getting at. My
question was why people usually talk as though tax was equivalent to
money disappearing from the economy or simply being taken out of
people’s pockets, when it clearly must reappear in people’s pockets as
wages and so forth, unless the government runs a surplus. It was a
question about how a popular delusion comes into existence and how it
can be sustained against all logic. What perceptions must be controlled
in order to sustain that belief against the evidence of the better
quality of life in high-tax countries, for example?
I have a similar question relating to the present “debate” on health
care reform in the USA. It seems bewildering to this outsider that
people talk about being unable to afford the various plans proposed.
Since the USA has one of the poorest public health records in the
developed world and the cost per capita is so much higher than the next
most expensive, it would seem almost necessary that any move toward a
public health system akin to that in other developed countries would
both reduce the cost and improve the performance. So why is the
argument about whether it is affordable? To me, that sounds like
another “popular delusion” (to quote from the title of an interesting
old book). What perceptions need to be controlled in order to sustain
that delusion?
However, I do have a speculation about your question, which is that it
takes coordination to accomplish big projects, whether they are done by
governments or by business. Business is more likely to address projects
that make profits for themselves, whereas government is more likely to
attack infrastructure projects that make no profits but improve the
ability of businesses to make profits, or that enhance the quality of
life of the people. Just spending on consumer products doesn’t
accomplish either.
Martin
···
[From Bill Powers (2009.08.24.0905 MDT)]
Martin Taylor 2009.08.24.00.46 --
How does the tax money vanish? Does it not get used to pay for things such
as public projects and debt financing, thereby putting as much into people's
pockets as it takes from people's pockets? If it doesn't go back into the
pockets of the taxpayers, just where does it go (assuming the government
isn't running a surplus)?
Bravo, Martin. Any time someone complains about "wasteful" government
spending. I hear a complaint of "Why is the government paying that money to
them instead of to me?" The money goes right back into the economy. The real
arguments are about where it comes out and where it goes back in.
Shannon Williams (2009.08.24.1730 CST)
What if instead of taxing a
percentage of income we just said: You can make as much money as you
want, but you have to spend it. If you don't spend it the government
will.
My
question was why people usually talk as though tax was equivalent to
money disappearing from the economy or simply being taken out of
people’s pockets, when it clearly must reappear in people’s pockets as
wages and so forth, unless the government runs a surplus. It was a
question about how a popular delusion comes into existence and how it
can be sustained against all logic. What perceptions must be controlled
in order to sustain that belief against the evidence of the better
quality of life in high-tax countries, for example?
I think people in general don’t think much about taxes except that they don’t want to pay them. The pockets people think the taxes are being taken out of are their own; and they are right. I don’t believe people in general use a lot of logic in thinking about taxes and I imagine that very few people in the US see any evidence of the better quality of life in high tax countries.
If you had asked how economists can sustain their belief in the “bad” economic effects of taxes against the evidence that I presented (low positive correlatoin between tax rate and growth) or the evidence you mention, of the better quality of life in high tax countries, then you are asking the question I am asking. And since economists are supposed to be scientists, the fact that they maintain their economic beliefs in the face of the evidence is much more troubling (and puzzling) to me than the fact that “ordinary” people do it.
However, I do have a speculation about your question, which is that it
takes coordination to accomplish big projects, whether they are done by
governments or by business. Business is more likely to address projects
that make profits for themselves, whereas government is more likely to
attack infrastructure projects that make no profits but improve the
ability of businesses to make profits, or that enhance the quality of
life of the people. Just spending on consumer products doesn’t
accomplish either.
Perfectly said, Martin. I was going to make the same point but you make it here much better than I could. I think taxes are like condo fees. The condo board (gov’t) uses this revenue to improve the common infrastructure. If people didn’t want to pay into the common pool then each individual condo might be decked out in proportion to what the owner can afford, but the common areas would go to hell. Basically, the condo would resemble a 3rd world country, with one very nice condo in the penthouse (with private security service, of course) and with the rest being shabby shacks in a miserably dilapidated building.
I think people in general don't think much about taxes except that they don't want to pay them. The pockets people think the taxes are being taken out of are their own; and they are right. I don't believe people in general use a lot of logic in thinking about taxes and I imagine that very few people in the US see any evidence of the better quality of life in high tax countries.
If you had asked how _economists_ can sustain their belief in the "bad" economic effects of taxes against the evidence that I presented (low positive correlatoin between tax rate and growth) or the evidence you mention, of the better quality of life in high tax countries, then you are asking the question I am asking. And since economists are supposed to be scientists, the fact that they maintain their economic beliefs in the face of the evidence is much more troubling (and puzzling) to me than the fact that "ordinary" people do it.
You are quite right (or perhaps I ought to say that I agree with you on both paragraphs). Most people simply don't have the data, so you can't expect them to create perceptions that require the data.
A sudden thought inspired somehow by this thread. Maybe it was the back-and-forth between government spending and private spending. It suddenly struck me that what is meant by "private" is not the consumer or wage-earner, but the dictatorships that divide the United States into both large and small power centers: businesses.
Businesses are not democracies. They are owned; their policies are determined by their owners. The rules that govern the workers are not voted upon; they are announced. The division of income between workers and owners is whatever the owners find they can get away with and still have the business function; the owners almost always take a share vastly larger than any one worker's share. When economic conditions reduce the owners' income, workers are simply disposed of and left to fend for themselves. Workers who complain publicly about the business policies, or who reveal illegal or dishonest activities by the business, can be dismissed without trial or hearing. Businesses compete; they do not work together for the common good.
I'm sure that many other aspects of the business dictatorships could be spelled out. Other terms, of course, could be substituted, such as kingdom or duchy or fiefdom, as long as the meaning is "control of the many by and for the benefit of the few." I think that is the main underlying conflict in the United States and elsewhere.
I wonder what would happen if this view were more publicly discussed?
As far as I know it is publicly discussed - from time to time in various places but, so far as I know, it never takes center stage. I think it is probably safe to say that all businesses are "owned" but not all "owners" are involved in running/managing the business. In the large, publicly-held corporations, ownership and management became separated a long time ago, leaving management (especially the executives) to do pretty much as they please. A couple of scholars - Adolph Berle and Gardiner Means - examined this in great detail back in 1932 and pretty much predicted the situation we now have. Their book - The Modern Corporation and Private Property - is still a fascinating read.
The technical term for the governance of most businesses is "oligarchy." I don't think most businesses qualify as dictatorships; their leadership is too easily overthrown by determined opponents. I have witnessed the "unhorsing" of more than one CEO and even saw one Navy commanding officer lose his command as a result of determined (even if sub rosa) opposition from the crew.
Of far more concern to me than the petty tyrants one occasionally encounters in corporations or the lack of democracy found there is the systematic way in which large corporations and wealthy individuals have corrupted our government - at all levels. But, then, PCT explains all that rather neatly, doesn't it. They're all just working to keep their perceptions aligned with their reference values.
Regards,
Fred Nickols
nickols@att.net
···
-------------- Original message ----------------------
From: Bill Powers <powers_w@FRONTIER.NET>
[From Bill Powers (2009.08.25.0629 MDT)]
Rick Marken (2009.08.24.2100) --
A sudden thought inspired somehow by this thread. Maybe it was the
back-and-forth between government spending and private spending. It
suddenly struck me that what is meant by "private" is not the
consumer or wage-earner, but the dictatorships that divide the United
States into both large and small power centers: businesses.
Businesses are not democracies. They are owned; their policies are
determined by their owners. The rules that govern the workers are not
voted upon; they are announced. The division of income between
workers and owners is whatever the owners find they can get away with
and still have the business function; the owners almost always take a
share vastly larger than any one worker's share. When economic
conditions reduce the owners' income, workers are simply disposed of
and left to fend for themselves. Workers who complain publicly about
the business policies, or who reveal illegal or dishonest activities
by the business, can be dismissed without trial or hearing.
Businesses compete; they do not work together for the common good.
I'm sure that many other aspects of the business dictatorships could
be spelled out. Other terms, of course, could be substituted, such as
kingdom or duchy or fiefdom, as long as the meaning is "control of
the many by and for the benefit of the few." I think that is the main
underlying conflict in the United States and elsewhere.
I wonder what would happen if this view were more publicly discussed?
[From Bill Powers (2009.08.25.0629 MDT)]
Rick Marken (2009.08.24.2100) --
A sudden thought inspired somehow by this thread. Maybe it was the back-and-forth between government spending and private spending. It suddenly struck me that what is meant by "private" is not the consumer or wage-earner, but the dictatorships that divide the United States into both large and small power centers: businesses.
Businesses are not democracies. They are owned; their policies are determined by their owners. The rules that govern the workers are not voted upon; they are announced. The division of income between workers and owners is whatever the owners find they can get away with and still have the business function; the owners almost always take a share vastly larger than any one worker's share. When economic conditions reduce the owners' income, workers are simply disposed of and left to fend for themselves. Workers who complain publicly about the business policies, or who reveal illegal or dishonest activities by the business, can be dismissed without trial or hearing. Businesses compete; they do not work together for the common good.
I'm sure that many other aspects of the business dictatorships could be spelled out. Other terms, of course, could be substituted, such as kingdom or duchy or fiefdom, as long as the meaning is "control of the many by and for the benefit of the few." I think that is the main underlying conflict in the United States and elsewhere.
I wonder what would happen if this view were more publicly discussed?
Best,
Bill P.
As far as I know it is publicly discussed - from time to time in various places but, so far as I know, it never takes center stage. I think it is probably safe to say that all businesses are "owned" but not all "owners" are involved in running/managing the business. In the large, publicly-held corporations, ownership and management became separated a long time ago, leaving management (especially the executives) to do pretty much as they please. A couple of scholars - Adolph Berle and Gardiner Means - examined this in great detail back in 1932 and pretty much predicted the situation we now have. Their book - The Modern Corporation and Private Property - is still a fascinating read.
The technical term for the governance of most businesses is "oligarchy." I don't think most businesses qualify as dictatorships; their leadership is too easily overthrown by determined opponents. I have witnessed the "unhorsing" of more than one CEO and even saw one Navy commanding officer lose his command as a result of determined (even if sub rosa) opposition from the crew.
Of far more concern to me than the petty tyrants one occasionally encounters in corporations or the lack of democracy found there is the systematic way in which large corporations and wealthy individuals have corrupted our government - at all levels. But, then, PCT explains all that rather neatly, doesn't it. They're all just working to keep their perceptions aligned with their reference values.
If you haven’t seen it, you might try to find a way to see a three-part
series called “The Corporation” that has been shown here a couple of
times on public TV. They go into the historical evolution of the
corporation, including a US Supreme Court decision that a corporation
is a legal person. They ask the question: If the corporation is a
person, what kind of a person is it? They look at what a corporation is
required to do, and answer that the legal constraints on the corporate
person require that it conform to all the psychiatric criteria for a
psychopath. A corporation is simply not allowed to take the public good
into consideration when policies are devised.
If you go to you will find a few
links to such things as sequential lessons, interviews, and
descriptions of the three programs in the series.
Martin
> [Shannon Williams (2009.08.24.1730 CST)]
>
> OK. So the reason that raising taxes improves the economy is because
> it ensures that the money gets spent. What if instead of taxing a
> percentage of income we just said: You can make as much money as you
> want, but you have to spend it. If you don't spend it the government
> will. No one is allowed to save more than a set amount. (The billion
> dollar trust fund companies would be out of business.)
MT: That’s an interesting idea, but it wasn’t what I was getting at.
DR: I thought it was an interesting idea too. I also think hidden within it are some further issues which you touch on in saying
MT: My question was why people usually talk as though tax was equivalent to money disappearing from the economy or simply being taken out of people’s pockets, when it clearly must reappear in people’s pockets as wages and so forth, unless the government runs a surplus.
DR: A question I had when Bush gave his huge tax cuts to the rich was whether or not it all got used
to create new businesses and new jobs for Americans. I never got a clear answer to that. What did strike me was the increasing reports of jobs flowing overseas from American companies at that time. Whether they were new companies set up from tax cut money also remained unreported by any source I was aware of. But, something else i was aware of was the beginning of the real estate surge starting about that time. It struck me that if I had a big jump in my income that I had no immediate use for one of the first things I’d put it into would be land and maybe buildings. They–land especially–has a long run future just because world population is increasing and the world area is not.
So my question to you Martin, is when money gets put away into things of permanent value like land, isn’t that like locking in up in a vault and thus doesn’t it actually disappear until it gets taken out again and put into the economy?
MT: It was a question about how a popular delusion comes into existence and how it can be sustained against all logic. What perceptions must be controlled in order to sustain that belief against the evidence of the better quality of life in high-tax countries, for example?
DR: Isn’t it the job of advertising and public relations companies to “sustain popular delusions against all logic?”
The evidence of their ability to do this is supported not only by research but the more tangible fact that they stay in business and command high fees for their work. As far as what perceptions are controlled–If I were a health care CEO earning, let’s say, ten million a year I would hire advertising like hell to persuade the public that it would be terrible if my company no longer had a purpose. That is the variable I would most want to control.
I have a similar question relating to the present “debate” on health care reform in the USA. It seems bewildering to this outsider that people talk about being unable to afford the various plans proposed. Since the USA has one of the poorest public health records in the developed world and the cost per capita is so much higher than the next most expensive, it would seem almost necessary that any move toward a public health system akin to that in other developed countries would both reduce the cost and improve the performance. So why is the argument about whether it is affordable? To me, that sounds like another “popular delusion” (to quote from the title of an interesting old book). What perceptions need to be controlled in order to sustain that delusion?
DR: I agree. But then my stake is in getting the most care for my money, not the most money for my care.
However, I do have a speculation about your question, which is that it takes coordination to accomplish big projects, whether they are done by governments or by business. Business is more likely to address projects that make profits for themselves, whereas government is more likely to attack infrastructure projects that make no profits but improve the ability of businesses to make profits, or that enhance the quality of life of the people. Just spending on consumer products doesn’t accomplish either.
MT: My question was why people usually talk as though tax was
equivalent to money disappearing from the economy or simply being taken
out of people’s pockets, when it clearly must reappear in people’s
pockets as wages and so forth, unless the government runs a surplus.
DR: …
So my question to you Martin, is when money gets put away into things
of permanent value like land, isn’t that like locking in up in a vault
and thus doesn’t it actually disappear until it gets taken out again
and put into the economy?
I suppose that if someone took a shovel and buried piles of banknotes,
that would be “putting money into land”. But when it’s just a
transaction between people, the money just goes into someone else’s
pocket. That other person can use it for other things, just as the
purchaser might have done if other things mattered more than ownership
of the land.
One way of looking at it is that nobody “owns” money. It’s just an
environmental affordance – a means whereby someone can act to bring
some perception nearer its reference value, using the actions of other
people in the process.
MT or FN: The technical
term for the governance of most businesses is
"oligarchy."
I don't think most businesses qualify as dictatorships; their
leadership
is too easily overthrown by determined opponents. I
have witnessed the
"unhorsing" of more than one CEO and even saw one
Navy commanding officer
lose his command as a result of determined (even if sub
rosa) opposition
from the crew.
BP: Very confusing: I got the same comment signed by Martin and
then again, signed by Fred. But it was very useful: “oligarchy”
is obviously the best term for what I was talking about. From the Navy
reference, I assume that Fred wrote the above. Whoever wrote whichever,
please turn word wrap on.
Is there some reason (other than the need to avoid hit squads) not to
campaign for a constitutional amendment that says, merely, “All
provisions of this constitution apply to all citizens 24 hours per day
every day” or something similar? That would clearly be a disturbance
for some people. I don’t seriously think that such an amendment would
stand a chance, but it would be really interesting to hear all the
reasons that would be given for why such an amendment would be
undesirable. And to see who would be giving those reasons. It’s clear
that many people really don’t want the USA to be a democracy and do want
it to be an oligarchy (thanks again). I wonder if that’s not the
underlying difference between conservatives and liberals.
Fred Nickols
Managing Partner
Distance Consulting, LLC
nickols@att.net
www.nickols.us
"Assistance at A Distance"
BP: Very confusing: I got the same comment signed by Martin and then
again, signed by Fred. But it was very useful: "oligarchy" is
obviously the best term for what I was talking about. From the Navy
reference, I assume that Fred wrote the above. Whoever wrote
whichever, please turn word wrap on.
DR: A question I had when Bush gave his huge tax cuts to the rich was whether or not it all got used to create new businesses and new jobs for Americans. I never got a clear answer to that.
Ah, we can get back to data here (it’s remarkable how quickly economic discussions go right back to theory). The relevant data here is the relationship between investment and growth. Tax cuts are supposed to increase investment, creating new businesses and jobs (as you say). But when you look at the data, what you see is that increased investment follows increased growth, it doesn’t precede it. I have private investment (Ig) and growth (dGDP) data (which I posted to the net some time ago) for the period 1949 to 2002. What I found is that the correlation between Ig three quarters prior to dGDP is negative (-.28). This means that increased investment now is associated with decreased growth 3 quarters hence. It also turns out the increased dGDP now leads to increased Ig in the future. This suggests to me that businesses (oligarchies;-) will very sensibly not invest until they see that there are consumers out there to buy the crap they produce So it’s very unlikely that cutting taxes will stimulate growth since, even if the tax savings were used for investment, the investment wouldn’t occur until growth had already started.
I’m still waiting to find out why the heck economists – virtually all of them, liberal and conservative – believe that increasing taxes is recessionary. Isn’t there an economist out there who can tell me why. Or have I already been told why: it’s because economists care only about what their theories say, the data be damned.
Oh, one more little interesting piece of data on taxes. The top marginal tax rate was 24% until 1933 (when FDR came in) at which point it went to 64%. Nevertheless, growth in GDP was steady throughout FDRs term (except for a brief recession in 1938, when the Fed decided to raise interest rates to cool down the economy). Given all this evidence, why do economists insist that taxes are recessionary? Why oh why oh why-oh?
[From Rick Marken (2009.08.25.1200)]
...
I'm still waiting to find out why the heck economists -- virtually all of
them, liberal and conservative -- believe that increasing taxes is
recessionary.� Isn't there an economist out there who can tell me why. Or
have I already been told why: it's because economists care only about what
their theories say, the data be damned.
...
Data is only valuable insofar as it serves to test a theory. The data
you're talking about isn't the result of a scientific test, so it
doesn't (necessarily, or in a straightforward manner) apply against
any given theory.
Your question naturally turns into the question "what are the theories
of economics that economists are so reluctant to imagine the data
might disprove?" From your situation as a control-systems theorist you
can readily imagine parallels. Somebody comes at you with a stack of
"data" and the confidence that it disproves that organisms control
their perceptions, what are you going to do with that data? You're
going to start by wondering why, and especially how, it might put any
pressure whatsoever on PCT. You're almost certainly going to start by
trying to interpret the "data" (including its context of collection)
from the perspective in which PCT is assumed to be accurate.
Economists do the same sort of thing with the numbers you're looking
at. Economists presume that the numbers they see coming out of
economic activity are consistent with their working premises. (Just as
PCTers presume "wild" numbers -- numbers obtained under non-PCT test
conditions -- are consistent with PCT.) The core premises are pretty
hard to test, and economics faces more difficulties with testing than
most sciences.
Tracy
···
On Tue, Aug 25, 2009 at 12:05 PM, Richard Marken<rsmarken@gmail.com> wrote:
