7 ms·

Defending the One Percent

30 points by scribu 11y ago

klahnakoski2 11y ago
I could not finish reading this. The paper started with examples of entrepreneurial success that depend heavily upon government regulation; namely the artificial scarcity generated from copyright and patents. Also the statement "These high earners have made significant economic contributions...", which is an axiom I am not willing to accept without some convincing argument. I found it impossible to read a paper that started dense with immature postulations and grandiose assumptions. The author should have been aware of the political climate of such a paper and attempted some care of his argument: At the very least admit to the reader that he's making ridiculous assumptions, but the argument will reveal itself with more reading.
JamesBarney 11y ago
This article seems to argue "Taxing the rich leads to reduced growth and therefore all of society is worse off for it." That every extra $1 the rich makes leads to a economy wide increase in $1.10. If this were true we would want to reduce taxation levels of the rich considerably. And we would expect inequality to be associated with very strong growth. Luckily we don't have to just speculate. The IMF has done in-depth research on this topic. And they found found that not only is growth not associated with inequality, but there is evidence inequality actually leads to lower growth rates.[0] [0]https://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf https://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf
- ConfuciusSay 11y ago
  You know when even the IMF is recommending we tax the rich more, there's probably something to the idea...
- wtbob 11y ago
  > This article seems to argue "Taxing the rich leads to reduced growth and therefore all of society is worse off for it." No, that's the utilitarian argument, which the article specifically considers unsatisfying, instead proposing an argument from justice.
paulsecwhatt 11y ago
A large number (majority?) of people who are proponents for american-style capitalism, advocating for less government intervention, are from big universities around the U.S, and will often earn a relatively high wage. Although it's very hard to quantify, I feel as though these people are very disassociated from the everyday life the claim to be studying. If you live near Harvard earning ~300k a year, how easy is it to imagine (pretend?) that everything is fine and that the skewed income distribution is actually a positive thing. Boiled down - can people who are part of such a skewed system really produce unbiased studies and theories about the system? They back up their claims with various arguments as to the nature of the average consumer and echoes and remnants of trickle-down economics theories. Why don't people instead look at the actual world for more accurate evidence? The U.S. is a pioneer of creating highly divided cultures, with the top 1% earning ridiculous amounts of money and living in relative luxury, while having a very large population of people struggling to make ends meet, or even get healthcare due to the associated costs. At the same time, countries exercising a highly socialistic economic policy (welfare countries), such as the Nordics and Germany to some extent have a far higher "average" quality of life, as well as (arguably) a happier population. Being a taxi driver in Norway or Denmark doesn't mean you live in near-poverty and have to work 80 hours a week to make ends meet. While I'll try to not get into details of economic theory, and so forth, one question that has always irked me is the following: Does the evidence not speak for itself? In what country has pure capitalism (or at least as close as we can get), actually worked to produce a happy and harmonious society?
- msandford 11y ago
  Personally I think that the growth of the banking sector is the problem, as it tends to capture more and more of the profits and allocate them to the pay of the bankers. It's also a brain-drain on other industries. Finally, the banks do occasionally lose everything and then we have to bail them out. Remove the "bail them out" part of the process and you'd likely see a fair amount of income equality restored. Banking has a concentrating effect on the economy, and the bigger the bank the more concentrating it is. If we had banks small enough to fail, they'd still concentrate but to a much smaller degree. That'd be good for income equality and good for putting smart people to work in favor of small businesses instead of against them, and good for reducing the tax burden on the non-rich who ultimately fund the bailouts.
cbaleanu 11y ago
Please mark as pdf.
- patcheudor 11y ago
  No kidding. I never really pay attention to links on HN because I tend to trust the community. I clicked on this one and a PDF started downloading to my horror. I immediately nuked it from my download folder. http://www.cvedetails.com/vulnerability-list/vendor_id-53/product_id-497/Adobe-Acrobat-Reader.html http://www.cvedetails.com/vulnerability-list/vendor_id-53/pr...
Sone7 11y ago
This guy's a professor of economics at Harvard?! ...Actually that explains a lot.
- murbard2 11y ago
  Yeah, I was thinking that too... it is really well written, it makes compelling and nuanced arguments and it sets a nice thought framework for the debate. This is really an excellent piece, no wonder he's an econ professor at one of the most prestigious university in the world, that guy is brilliant.
  - qntty 11y ago
    haha I think they were implying the opposite
  - dbingham 11y ago
    Either you way over did the sarcasm or you and I are reading totally different articles. This thing is full of undefended assertions and logical holes. The thought experiment it opened with is so simplistic that it does little beyond revealing the author's bias and assumptions. Assumptions that are absurdly disconnected from reality (such as all voluntary transactions make both people's lives better).
    - murbard2 11y ago
      I genuinely think it's a great piece, no sarcasm intended (though I obviously playfully ignored the fact that the OP was implying the opposite) Experiments in general are meant to be simplistic. The goal is to remove as many confounding factors as possible to isolate a single phenomenon and study it. From there, he builds up to a more realistic model by incorporating more and more factors.
macspoofing 11y ago
Isn't the entire 'one percent' debate (in America) centered around the fact that one party wants to institute a modest tax increase on that group, and the other party wants to, irrationally, keep cutting their taxes even when faced with deficits? Nobody reasonable is actually advocating for 'perfect economic equality'. I'm generally a free market guy (in that I believe the free market should be the foundation of the economy but not dictate every aspect of it), but I just can't see a reasonable tax increase as being a problem. I don't see a problem with a reasonable minimum wage either ($12-$15/hr), especially when tax dollars are subsidizing the working-poor with food stamps, students loans, public housing, health-care etc. As much as I'm disappointed with Wal-Mart for not being embarrassed their employees are on food stamps, I understand that they can't raise their wage unilaterally lest it puts them at a competitive disadvantage - which is why you need legislation! Make it fair for everybody.
- hga 11y ago
  and the other party wants to, irrationally, keep cutting their taxes even when faced with deficits One thing we've learned is that never, ever happens. Instead, increased revenues, such as provided by Reagan's tax rate cuts, allows higher leverage AKA deficits. So "starving the beast" seems to be the best approach, until, of course, the accumulated deficits are inevitably reneged on one way or another (e.g. inflation "works").
  - bargl 11y ago
    It's important to note that they (republicans) tend to want to cut taxes but not services, because they can't compromise and cut both the military and medicare/Medicaid/welfare/etc. They just want to cut the latter. The lack of compromise leads to neither happening so many republicans really don't want smaller govt. Some do, don't get me wrong. But many don't.
    - hga 11y ago
      Actually, Republicans can be quite willing to cut the military, remember Dwight "military-industrial complex" Eisenhower, under who it was cut after the Korean War wound down, and you could make a case that the current sequester is cutting the budget. It's very very hard to analyze, because you have to factor in wars, especially ones we did not exactly choose to fight (e.g. Korean), and weapons procurement. E.g. however bogus the F-35 is, or the premature cut of manufacturing the F-22 was, one way or another we'd be spending a lot of money right now replacing the tactical airplanes we started building in the '70s (especially since the F-15A through D models were improperly manufactured: https://en.wikipedia.org/wiki/McDonnell_Douglas_F-15_Eagle#Structural_defects https://en.wikipedia.org/wiki/McDonnell_Douglas_F-15_Eagle#S...) And I see no signs the establishment GOP is truly interested in cutting "medicare/Medicaid/welfare", however much they might talk about cutting the latter two. Heck, they can't even bring themselves to terminate with extreme prejudice the National Endowment for the Arts.
e12e 11y ago
The absurd example in the second paragraph put me off, so I didn't really find it in me to read the argument thoroughly. But if the premise is that a single man can "come up with an idea" and magically produce an ipod with comparable personal effort, and no reliance of a third world factory economy -- as an author can come up with a book -- then I don't think the author of the article has the required connection to reality to discuss economics at all. Earlier today I came across this, which may (or may not) be an interesting counter-point -- or at least make a meta-point: "Exposing the false prophets of social transformation": https://opendemocracy.net/transformation/nicole-aschoff/exposing-false-prophets-of-social-transformation https://opendemocracy.net/transformation/nicole-aschoff/expo...
- hga 11y ago
  Did the iPod require a "third world factory economy", or was that merely the best way to make it when it was developed? Go back to the original Apple II and subsequent products, they were per memory and Wikipedia all made in the US until the late 1990s. The IBM PC was originally manufactured by SCI Systems in Huntsville, Alabama.
  - eitally 11y ago
    Woohoo -- thanks for calling out my previous employer, which also built Macs for a good while (in Colorado). What a lot of folks don't seem to understand about "third world factory economies" is that the prototyping and initial product runs are still frequently done in the west. Some EMS companies, like Flex, even have hardware incubators in Silicon Valley (google "Lab IX" sometime); all of them offer JDM & ODM services, too.
  - MagicWishMonkey 11y ago
    Well if they doubled the price of iPods in order to manufacture them inside the United States, no one would buy an iPod and the product would fail. That's not to say American manufacturing would cause the price to double, just pointing out that where you manufacture something is an important part of the product planning process.
  - 11y ago
crdoconnor 11y ago
A few years ago some of his own students staged a walkout of his lectures because of his innate desire to laud the American oligarchs: http://www.thecrimson.com/article/2011/11/2/mankiw-walkout-economics-10/ http://www.thecrimson.com/article/2011/11/2/mankiw-walkout-e...
jgoewert 11y ago
Oh.. I thought he was going to go on an argument that we need to implement basic income as a method for improving efficiency when his second paragraph included an author who put herself into the one percent by being creative and making a product while being unemployed and on socialist welfare and that by removing a lot of what is effectively the "chaff" of the capitalist workforce the workforce that wants to be part of the workforce improves overall. I guess since he also included an businessman known for his abhorrent disdain for socialism that he flippantly crams his vehicles into spots designated for people with disabilities, I should have realized the final outcome would be an argument that extreme wealth creates utilitarianism and is more efficient then trying to broaden wealth. Reminds me of the decay of the Roman empire in the 400's and how the rich started abstaining from the government and society that tried to represent and assist everyone to create micro-communities in their villas and start up the process of feudalism. What shall we call our new era of a society that is now 90% capital deprived and rising? Feudalism 2.0? Feudl.ism? Feu.dl?
CPLX 11y ago
Be advised that the most relevant credential for this author is that he was the top economic advisor to the administration of George W. Bush. Defending the 1% is literally what he does for a living.
PythonicAlpha 11y ago
The trouble is not that inequality exists -- I think, that some form is necessary in our world -- but that the inequality is increasing in a rapid rate and that in the current state of our society, not achievements where the society benefits are rewarded by the system, but rather achievements where society looses (e.g. speculations, pure possession of wealth, investing -- whatever frivolous it might be, omitting taxes by using legal holes and off-shore trickery, ....) Even Buffett spoke out, that his class wins, but it should not (for the good of society). And he said, that something is wrong, when his secretary has to pay a much higher tax-rate as himself.
- wtbob 11y ago
  > Even Buffett spoke out, that his class wins, but it should not (for the good of society). And he said, that something is wrong, when his secretary has to pay a much higher tax-rate as himself. Did you read the article? Mankiw noted that when CBO statistics are used, taking into account all taxation, not just income taxes, the United States have a very progressive tax system.
  - jazzyk 11y ago
    On paper. In reality, there are many loopholes (the more money involved, the more fully legal loopholes)
    - wtbob 11y ago
      No, the CBO study looked at the actual dollars coming from people; as Prof. Mankiw notes, while there might be invididual exceptions the overall figures are as stated.
      - PythonicAlpha 11y ago
        So, your claim is, that Buffett does not know how much taxes he pays? If this would be true, I would wonder, how he got all his money in the first place. >the United States have a very progressive tax system Compared to which system? The system of Sweden or of Uruguay? You of course can find dozens of third world countries, with dysfunctional tax system. I guess, they are similar studies as can be bought (in dozens) in the country, I live in.
arithma 11y ago
Inequality of opportunity is a much bigger problem than inequality of, say, income. An ideal community is a place where every individual's contributions are enabled to the maximum. Capitalistic economies start out that way for a while, and then lock in opportunities to the people who need them the least. Guarantee education, and basic livelihood and the community reaps the benefits.

30 points by scribu 11y ago

I could not finish reading this. The paper started with examples of entrepreneurial success that depend heavily upon government regulation; namely the artificial scarcity generated from copyright and patents. Also the statement "These high earners have made significant economic contributions...", which is an axiom I am not willing to accept without some convincing argument. I found it impossible to read a paper that started dense with immature postulations and grandiose assumptions. The author should have been aware of the political climate of such a paper and attempted some care of his argument: At the very least admit to the reader that he's making ridiculous assumptions, but the argument will reveal itself with more reading.

JamesBarney 11y ago

This article seems to argue "Taxing the rich leads to reduced growth and therefore all of society is worse off for it." That every extra $1 the rich makes leads to a economy wide increase in $1.10. If this were true we would want to reduce taxation levels of the rich considerably. And we would expect inequality to be associated with very strong growth. Luckily we don't have to just speculate. The IMF has done in-depth research on this topic. And they found found that not only is growth not associated with inequality, but there is evidence inequality actually leads to lower growth rates.[0] [0]https://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf https://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf

ConfuciusSay 11y ago
You know when even the IMF is recommending we tax the rich more, there's probably something to the idea...
wtbob 11y ago
> This article seems to argue "Taxing the rich leads to reduced growth and therefore all of society is worse off for it." No, that's the utilitarian argument, which the article specifically considers unsatisfying, instead proposing an argument from justice.

paulsecwhatt 11y ago

A large number (majority?) of people who are proponents for american-style capitalism, advocating for less government intervention, are from big universities around the U.S, and will often earn a relatively high wage. Although it's very hard to quantify, I feel as though these people are very disassociated from the everyday life the claim to be studying. If you live near Harvard earning ~300k a year, how easy is it to imagine (pretend?) that everything is fine and that the skewed income distribution is actually a positive thing. Boiled down - can people who are part of such a skewed system really produce unbiased studies and theories about the system? They back up their claims with various arguments as to the nature of the average consumer and echoes and remnants of trickle-down economics theories. Why don't people instead look at the actual world for more accurate evidence? The U.S. is a pioneer of creating highly divided cultures, with the top 1% earning ridiculous amounts of money and living in relative luxury, while having a very large population of people struggling to make ends meet, or even get healthcare due to the associated costs. At the same time, countries exercising a highly socialistic economic policy (welfare countries), such as the Nordics and Germany to some extent have a far higher "average" quality of life, as well as (arguably) a happier population. Being a taxi driver in Norway or Denmark doesn't mean you live in near-poverty and have to work 80 hours a week to make ends meet. While I'll try to not get into details of economic theory, and so forth, one question that has always irked me is the following: Does the evidence not speak for itself? In what country has pure capitalism (or at least as close as we can get), actually worked to produce a happy and harmonious society?

msandford 11y ago
Personally I think that the growth of the banking sector is the problem, as it tends to capture more and more of the profits and allocate them to the pay of the bankers. It's also a brain-drain on other industries. Finally, the banks do occasionally lose everything and then we have to bail them out. Remove the "bail them out" part of the process and you'd likely see a fair amount of income equality restored. Banking has a concentrating effect on the economy, and the bigger the bank the more concentrating it is. If we had banks small enough to fail, they'd still concentrate but to a much smaller degree. That'd be good for income equality and good for putting smart people to work in favor of small businesses instead of against them, and good for reducing the tax burden on the non-rich who ultimately fund the bailouts.

cbaleanu 11y ago

Please mark as pdf.

patcheudor 11y ago
No kidding. I never really pay attention to links on HN because I tend to trust the community. I clicked on this one and a PDF started downloading to my horror. I immediately nuked it from my download folder. http://www.cvedetails.com/vulnerability-list/vendor_id-53/product_id-497/Adobe-Acrobat-Reader.html http://www.cvedetails.com/vulnerability-list/vendor_id-53/pr...

Sone7 11y ago

This guy's a professor of economics at Harvard?! ...Actually that explains a lot.

murbard2 11y ago
Yeah, I was thinking that too... it is really well written, it makes compelling and nuanced arguments and it sets a nice thought framework for the debate. This is really an excellent piece, no wonder he's an econ professor at one of the most prestigious university in the world, that guy is brilliant.
- qntty 11y ago
  haha I think they were implying the opposite
- dbingham 11y ago
  Either you way over did the sarcasm or you and I are reading totally different articles. This thing is full of undefended assertions and logical holes. The thought experiment it opened with is so simplistic that it does little beyond revealing the author's bias and assumptions. Assumptions that are absurdly disconnected from reality (such as all voluntary transactions make both people's lives better).
  - murbard2 11y ago
    I genuinely think it's a great piece, no sarcasm intended (though I obviously playfully ignored the fact that the OP was implying the opposite) Experiments in general are meant to be simplistic. The goal is to remove as many confounding factors as possible to isolate a single phenomenon and study it. From there, he builds up to a more realistic model by incorporating more and more factors.

macspoofing 11y ago

Isn't the entire 'one percent' debate (in America) centered around the fact that one party wants to institute a modest tax increase on that group, and the other party wants to, irrationally, keep cutting their taxes even when faced with deficits? Nobody reasonable is actually advocating for 'perfect economic equality'. I'm generally a free market guy (in that I believe the free market should be the foundation of the economy but not dictate every aspect of it), but I just can't see a reasonable tax increase as being a problem. I don't see a problem with a reasonable minimum wage either ($12-$15/hr), especially when tax dollars are subsidizing the working-poor with food stamps, students loans, public housing, health-care etc. As much as I'm disappointed with Wal-Mart for not being embarrassed their employees are on food stamps, I understand that they can't raise their wage unilaterally lest it puts them at a competitive disadvantage - which is why you need legislation! Make it fair for everybody.

hga 11y ago
and the other party wants to, irrationally, keep cutting their taxes even when faced with deficits One thing we've learned is that never, ever happens. Instead, increased revenues, such as provided by Reagan's tax rate cuts, allows higher leverage AKA deficits. So "starving the beast" seems to be the best approach, until, of course, the accumulated deficits are inevitably reneged on one way or another (e.g. inflation "works").
- bargl 11y ago
  It's important to note that they (republicans) tend to want to cut taxes but not services, because they can't compromise and cut both the military and medicare/Medicaid/welfare/etc. They just want to cut the latter. The lack of compromise leads to neither happening so many republicans really don't want smaller govt. Some do, don't get me wrong. But many don't.
  - hga 11y ago
    Actually, Republicans can be quite willing to cut the military, remember Dwight "military-industrial complex" Eisenhower, under who it was cut after the Korean War wound down, and you could make a case that the current sequester is cutting the budget. It's very very hard to analyze, because you have to factor in wars, especially ones we did not exactly choose to fight (e.g. Korean), and weapons procurement. E.g. however bogus the F-35 is, or the premature cut of manufacturing the F-22 was, one way or another we'd be spending a lot of money right now replacing the tactical airplanes we started building in the '70s (especially since the F-15A through D models were improperly manufactured: https://en.wikipedia.org/wiki/McDonnell_Douglas_F-15_Eagle#Structural_defects https://en.wikipedia.org/wiki/McDonnell_Douglas_F-15_Eagle#S...) And I see no signs the establishment GOP is truly interested in cutting "medicare/Medicaid/welfare", however much they might talk about cutting the latter two. Heck, they can't even bring themselves to terminate with extreme prejudice the National Endowment for the Arts.

e12e 11y ago

The absurd example in the second paragraph put me off, so I didn't really find it in me to read the argument thoroughly. But if the premise is that a single man can "come up with an idea" and magically produce an ipod with comparable personal effort, and no reliance of a third world factory economy -- as an author can come up with a book -- then I don't think the author of the article has the required connection to reality to discuss economics at all. Earlier today I came across this, which may (or may not) be an interesting counter-point -- or at least make a meta-point: "Exposing the false prophets of social transformation": https://opendemocracy.net/transformation/nicole-aschoff/exposing-false-prophets-of-social-transformation https://opendemocracy.net/transformation/nicole-aschoff/expo...

hga 11y ago
Did the iPod require a "third world factory economy", or was that merely the best way to make it when it was developed? Go back to the original Apple II and subsequent products, they were per memory and Wikipedia all made in the US until the late 1990s. The IBM PC was originally manufactured by SCI Systems in Huntsville, Alabama.
- eitally 11y ago
  Woohoo -- thanks for calling out my previous employer, which also built Macs for a good while (in Colorado). What a lot of folks don't seem to understand about "third world factory economies" is that the prototyping and initial product runs are still frequently done in the west. Some EMS companies, like Flex, even have hardware incubators in Silicon Valley (google "Lab IX" sometime); all of them offer JDM & ODM services, too.
- MagicWishMonkey 11y ago
  Well if they doubled the price of iPods in order to manufacture them inside the United States, no one would buy an iPod and the product would fail. That's not to say American manufacturing would cause the price to double, just pointing out that where you manufacture something is an important part of the product planning process.
- 11y ago

crdoconnor 11y ago

A few years ago some of his own students staged a walkout of his lectures because of his innate desire to laud the American oligarchs: http://www.thecrimson.com/article/2011/11/2/mankiw-walkout-economics-10/ http://www.thecrimson.com/article/2011/11/2/mankiw-walkout-e...

jgoewert 11y ago

Oh.. I thought he was going to go on an argument that we need to implement basic income as a method for improving efficiency when his second paragraph included an author who put herself into the one percent by being creative and making a product while being unemployed and on socialist welfare and that by removing a lot of what is effectively the "chaff" of the capitalist workforce the workforce that wants to be part of the workforce improves overall. I guess since he also included an businessman known for his abhorrent disdain for socialism that he flippantly crams his vehicles into spots designated for people with disabilities, I should have realized the final outcome would be an argument that extreme wealth creates utilitarianism and is more efficient then trying to broaden wealth. Reminds me of the decay of the Roman empire in the 400's and how the rich started abstaining from the government and society that tried to represent and assist everyone to create micro-communities in their villas and start up the process of feudalism. What shall we call our new era of a society that is now 90% capital deprived and rising? Feudalism 2.0? Feudl.ism? Feu.dl?

CPLX 11y ago

Be advised that the most relevant credential for this author is that he was the top economic advisor to the administration of George W. Bush. Defending the 1% is literally what he does for a living.

PythonicAlpha 11y ago

The trouble is not that inequality exists -- I think, that some form is necessary in our world -- but that the inequality is increasing in a rapid rate and that in the current state of our society, not achievements where the society benefits are rewarded by the system, but rather achievements where society looses (e.g. speculations, pure possession of wealth, investing -- whatever frivolous it might be, omitting taxes by using legal holes and off-shore trickery, ....) Even Buffett spoke out, that his class wins, but it should not (for the good of society). And he said, that something is wrong, when his secretary has to pay a much higher tax-rate as himself.

wtbob 11y ago
> Even Buffett spoke out, that his class wins, but it should not (for the good of society). And he said, that something is wrong, when his secretary has to pay a much higher tax-rate as himself. Did you read the article? Mankiw noted that when CBO statistics are used, taking into account all taxation, not just income taxes, the United States have a very progressive tax system.
- jazzyk 11y ago
  On paper. In reality, there are many loopholes (the more money involved, the more fully legal loopholes)
  - wtbob 11y ago
    No, the CBO study looked at the actual dollars coming from people; as Prof. Mankiw notes, while there might be invididual exceptions the overall figures are as stated.
    - PythonicAlpha 11y ago
      So, your claim is, that Buffett does not know how much taxes he pays? If this would be true, I would wonder, how he got all his money in the first place. >the United States have a very progressive tax system Compared to which system? The system of Sweden or of Uruguay? You of course can find dozens of third world countries, with dysfunctional tax system. I guess, they are similar studies as can be bought (in dozens) in the country, I live in.

arithma 11y ago

Inequality of opportunity is a much bigger problem than inequality of, say, income. An ideal community is a place where every individual's contributions are enabled to the maximum. Capitalistic economies start out that way for a while, and then lock in opportunities to the people who need them the least. Guarantee education, and basic livelihood and the community reaps the benefits.