Sunday, May 31, 2009

Mankiw, height taxes, and wilful blindness to history

Comment on "Redistribution, height taxes and utilitarianism" at Economists View

Mankiw is committing the common mistake of classical economists, they simply ignore actual economic history and the differing motivations behind the progressive agenda.

Some parts of that agenda are driven by utilitarianism. For example I would put universal single payer in that category. As a democratic people we have decided some goods should be delivered by public means. This includes such things as schools, most roads, fire protection, libraries. More controversially in the 60's we added such things as basic nutrition, income and medical coverage for the poor. None of this was inevitable, in colonial days all of those services were delivered in large part or in whole via the private sector either on a profit, subscription or charity basis. The extension of this to universal health care may to some be driven by morality, to others by ideology, but in a democratic society the real driver is utilitarian considerations.

Progressive taxation has much more mixed roots. Certainly it is partially utilitarian in impulse, once we have decided that things like libraries are public goods we have to acknowledge that not all people who utilize them can afford to pay a pro rata share, or else we could have just left them on the existing subscription system. The inevitable result is that there will end up being some downwards subsidy. The solution devised was to fund most of these from taxes on property and sales, with some exemptions built it. But in any event these taxes are proportionate and keyed to free actions, that is no one is forced to build a mansion and furnish it luxuriously and so incurring huge property and sales taxes.

Which gets us to the progressive income tax which is by designed not strictly proportional. And the motivation for this is only partially utilitarian, it is also a concession to the historical reality that distribution of the gains from productivity are not delivered by some magical and precise division of those gains by the exact contribution of capital and labor inputs, that is a textbook fantasy promulgated by the servants of the winners in this particular game, e.g. the Manchester School.

I have just begun re-reading E.P. Thompson's The Making of the English Working Class and its lesson is clear. You can explain much of the political and economic history of England as a constant battle to protect property rights from democracy, and this too even for those among the leadership of the popular side of the English Civil War. On the one side you have the Leveller Colonel Rainborough:

"For really I think that the poorest he that is in England hath a life to live, as the greatest he; and therefore truly, sir, I think It's clear that every man that is to live under a government ought first by his own consent to put himself under that government .... I should doubt he was an Englishman or no, that should doubt of these things."

This is a demand for universal manhood suffrage. To which Cromwell's son-in-law General Ireton replied

"o person hat a right to an interest or share in the disposing of the affairs of the kingdom... that hath not a permanent fixed interest in this kingdom"

And by what reason does he privilege property holders so?

"All the main thing that I speak for, is because I would have an eye to property, I hope we do not come to contend for victory-but let every man consider with himself that he do not go that way to take away all property. For here is the case of the most fundamental part of the constitution of the kingdon, which if you take away, you take away all that"

Ireton here is drawing a straight line from democracy to socialism and even communism (in the pre-Marx sense), property however acquired is to be protected by the state from the demands of the workers.

The resultant distribution of gains from productivity was the direct result of one sector of society, those who controlled capital, having complete control of the political institutions. This was to some degree less true in the United States, the near absence of a landed aristocracy and the free availability of land to the West leveled the political power some, but still prior to the Progressive movement of the late 19th century political power was largely reserved for large property owners who in turn made sure that no issues around equity or actual analysis of the relative contributions of capital and labor ever entered into the question of distribution of gains of productivity. Instead we have and perhaps still continue to have descendants of the Manchester School acting as apologists for their masters and insisting that any attempts to redress the power imbalance simply a violation of Economic Law carried down on an Invisible Third Tablet from Mt. Sinai.

Progressive taxation is then driven by a democratic understanding that the reason it took Great Britain until 1918 and the U.S. in most respects to the One Man, One Vote rulings of the early sixties is because property owners continued to maintain a thumb on the scale of economic outcomes. The graduated income tax simply being an acknowledgement of historical reality.

So Mankiw's argument rests on fallacious grounds and weasel language. The very use of 'redistribution' builds in the assumption that the initial distribution was strictly proportionate to actual economic inputs. Anyone who ever believed that should have had their eyes opened by AIG bonuses, those bankers, like English aristocrats in the Edwardian Age, had become comfortable with their lavish lifestyles and had no attention of giving them up even after being revealed to be mostly economic parasites. That is Mankiw is serving in the role of Jeeves, the hyper-intelligent and clever servant to his master the hapless Bertie Wooster, here represented by the wealthy and ultra-wealthy of the U.S.

Mankiw wants to blur the line between redistribution and restitution, the wealthy of this country in large part got that way because the political and economic structures have always been rigged in their favor. The progressive and graduated income tax is a method for demanding restitution for their unfair grab of the original gains. To pretend that this is all the same as taxing people on the basis of their height or their I.Q. or whatever is historical nonsense.

Tuesday, May 12, 2009

2009 Social Security Report

The 2009 Report of the Trustees of Social Security is due out today 'late afternoon' DC time. Assuming the Trustees use the same file name conventions as they have in the past the following links should come live right as the Report is released to the web. If for some reason they are different you should be able to access the PDF and HTML versions or order the paper version at Reports from the Board of Trustees

Entry page
Table of Contents
List of Tables
List of Figures

Sunday, May 03, 2009

Knowledge and Propaganda: a Draft

(This post was conceived as a response to a post at Angry Bear but it got too unwieldy. The line three quarters down marks the point I stopped my revision meaning there is a gap in the argument. But anyone interested can I think see where I was going. Comments for revisions, corrections, or additions welcome)

by Bruce Webb

Linda Beale asks a challenging question in Misunderstandings about tax
Until we stop just repeating what we hear as though it were factual, we can't expect to hunker down and do the tough work of figuring out how to create a better health care system, make fundamental changes in the way that financial institutions work (see her post for continuation).
While I am in full agreement with Linda on the substance and the challenge we face I am a little bothered by the underlying concept that one group of people is either the victim or perpetrator of propaganda while another group has access to some established body of facts. Reality is a little more messy. If you don't mind some mess follow me below the fold.

And please, keep in mind that I am not a professional student of epistemology or paleontology or the history of science, I am sure any number of people have written with a lot more expertise on any of the issues and examples I use. So feel free to point out refinements and suggestions for future reading. But this is a blog post, hammered out on a Sunday morning for the purposes of starting a discussion about in this case tactics in winning a political message war. No doubt I could make a better case if I read a couple of dozen books and spent a few weeks working it over. Or I could go out for Sunday brunch. I am thinking brunch. Feel free to criticize but understand that this is not intended to be definitive, just hopefully suggestive.
In practice 'true knowledge' is more often than not the result of accepting some one or some groups authority. That is when you pick up a textbook called 'Introduction to Something or Other' you expect that the authors are presenting some kind of synthesis and that that synthesis is somehow 'true'. But a study of History and particularly the History of Science shows that to be deceptive. As an example we can take the example of the Cretaceous-Tertiary Extinction Event which Wiki sums up the current state of 'knowledge' with
Scientists theorize that the K–T extinctions were caused by one or more catastrophic events such as massive asteroid impacts as the Chicxulub impact or increased volcanic activity. Several impact craters and massive volcanic activity in the Deccan traps have been dated to the approximate time of the extinction event. These geological events may have reduced sunlight and hindered photosynthesis, leading to a massive disruption in Earth's ecology. Other researchers believe the extinction was more gradual, resulting from slower changes in sea level or climate.
While there are hints of dissent with 'other researchers' the thrust of the whole article would lead you to believe there is fairly broad consensus among paleontologists around the Alverez Hypothesis. Well it is not my field but I can tell you that at the time the Alverez team published the paper the consensus among the Paleontologists at Berkeley, one of the premier sites for the field, was universally negative and the subsequent battle went very public and spilled over into campus and outside newspapers and publications. Why the bitterness? Well to the Paleo people it seemed to revive a battle between Junk Science and Science that they had won decades ago, that of Catastrophism. Catastrophism was and is invoked by Creationists on the one hand and by disciples of Velikovsky on the other to deny evolution and support biblical time lines. Anything that hinted of it seemed to the professionals in the discipline to be dangerous junk science. (It didn't help that Walter Alverez was from a different Department and was thought to have brought in his far more famous Nobel winning father for simple academic cover).

In time Paleontology found a way to incorporate the Alverez Hypothesis and allow it to be the public face of the field, that is I expect the typical textbook introduction or book for kids presents the asteroid strike theory as standard. But turning to Nancy's question we are faced with a similar problem here. A few years ago the battle between the Freshwater and the Saltwater folk seemed won by the former who were called by some the 'Orthodox' (literally 'right belief') as opposed to the 'Heterodox' ('Other or different belief). And as a byproduct of that victory to some degree won the battle of the 'Introduction to Economics' textbook, with the end result that of Nancy's commenter. He 'knows' what he knows because it is the product of everything he has heard or read on this subject from people whose authority he accepts.

The problem we fact is that most people on most subjects can only push back based on what they have heard or read on this subject. That is I know lots and lots of stuff about Ancient Rome because I took lots of classes and lots of books from people widely considered to be experts in the field. On the other hand my counterparts in Paleontology were taught to reject the Alvarez Hypothesis out of hand by people widely considered to be THE experts in the field. Authority is not always determinative.

So what if we skip appeals to authority and just resort to facts, as for example official statistics and the historical record. Well the problem turns out that often we don't really know what we are measuring to start with, a very large fraction of what Forbes counted as 'wealth' turned out to be illusory, the data was infused with some assumptions that turned out to be unsustainable. And this turns out to be true of most 'facts' and almost all of the 'historical record'. Most people think of History as being just someone writing down what happened. In reality there is no day by day recording of the past, instead the course of events and the motivations of the actors have to be extracted from documentary material that mostly were produced for purposes other than historical. And for those pieces that were in some since historical were themselves the product of the same process and often enough infused with the particular purpose of the Chronicler. And in sorting all of this out it is almost impossible for the historian not to allow his views of politics and sociology shape the narrative.

As an example in Roman history Julius Caesar is generally treated in a fairly negative fashion compared to his rival Pompey the Great or his successor Augustus. Similarly the Gracchi brothers are cast in a negative light compared to their opponents. And in my view the reason is relatively simple, when the basics of the field were being hammered out in the late eighteenth and the nineteenth century society was marked by extensive popular unrest revolving around extending political power to the masses. It turns out that almost all the people studying Roman people were socially, economically, and culturally aligned with the Gentry and Merchant Class, for them Caesar and the Gracchi's were dangerous enablers of demogogy. That is the class struggle around the Reform Act of 1832 and the Chartists spilled over into the founding history books of the field and were mostly carried forward to the current day. And trying to tell a countervailing narrative is very difficult, it just doesn't accord with what people 'know' about Rome.

Similarly British medieval history was first systematically addressed in the latter half of the 19th Century with historians roughly split between those aligned with the country Gentry (Whigs) and those aligned with the interests of industrialization and trade (Liberals) with a sprinkling of those focusing on workers revolutions (Marxists and Social Democrats). For very different reasons each camp had reasons for wanting to believe that the typical medieval peasant lived in a constant state of filth clinging to the edge of subsistance. Whigs who had spent the last couple centuries driving peasants off their lands could defend themselves by claiming their existence was so miserable before that even homelessness would be better. The Liberals were committed to the belief that they could get away with wage suppression because after all that would be an improvement. As for the Marxists I'll let other people explain it better, their theory of class struggle and economic development required a belief in total feudal exploitation of workers as well. When attention in the post-war era finally turned to the actual conditions of rural life in medieval Britain the picture gets more mixed. It definitely wasn't the Merrie Olde England as represented in Robin Hood, but neither was it that of Monty Python and the Holy Grail. But once again pushing back on the established narrative is almost impossible. Everyone 'knows' that medieval people were filthy and even the rich were illiterate and almost everyone died before the age of forty. Well none of that is particularly true but good luck telling a different story.

You see the same effect in treatments of American history. At one point I had possession of my Great Grandfather's eighth grade American History textbook written sometime in the 1870s. It turns out that what I 'knew' about the founding of the American colonies was much different than what Grandpa Grant 'knew' about those same events and what he 'knew' was a whole lot more complex and violent than what I 'knew'. (It turns out there were many more colonies established by various European countries along the east coast than I 'knew' and most of them failed not because of bad winters, but instead by being burned out by rivals). When Grandpa Grant was growing up America was aggressively fighting the Indian Wars and Britain was equally aggressive in building its Empire, taking the resources of others by force was just what great countries did, there was no need to sugar-coat early American history. The fact that the United States had undertaken a frankly aggressive war against Mexico and simply took over roughly half of its territory was something to be celebrated

By the time I came around it was different. In 1957 we were locked in a struggle between Godly Freedom and Godless Communism and social reality and hence 'truth' was shaped around that. For example 'In God We Trust' which had been an authorized but not universal slogan for coinage was added to all coins in the 1950s and the words 'Under God' inserted in the pledge of allegiance and soon enough everyone 'knew' that America had always been founded on Christian principles and devoted to Freedom of Religion and Democracy. (In a quick Google visit the Christian or not question would seem to rest on the question of whether Unitarians are really Christians, a fight for another time). Moreover America's self-appointed role as promoter of freedom and democracy and generally anti-colonial stance meant kind of sweeping the Mexican War, the Annexation of Hawaii, and the Spanish-American War somewhat under the table. Russia asserting its rights to Empire? Bad. Japans attempts to enforce the Greater East Asian Co-Prosperity Sphere? Bad. The United States kicking the shit out of Mexico and stealing California? Well that is just Manifest Destiny. Doing the same to Spain in 1898? 'Remember the Maine'. Because God forbid anyone challenge America's world-historical role of Christian Exceptionalism and all around Good Guys.

So we can see that very often our 'true knowledge' about the 'historical record' is the result of a social construct which is sometimes concious and sometimes not. And this is true from both sides.


Just as most people read newspapers and watch TV news and think that is just what happened yesterday or today. But people who actually practice history understand that is is a matter of interpreting often fragmentary data into a narrative shaped in large part by the social reality the historian brings to it, it is almost impossible to produceAnd so I have friends who come to me and repeat the most ridiculous wingnut talking points and when I push back they say "hey I heard it on 'Dori Monson". And if I retort well 'Dean Baker and Nancy Beale say that is ridiculous' they could respond 'Who' and 'How many listeners/readers do they have'. And you really don't have a ready answer.

I follow and trust Paul Krugman and Dean Baker, while I may quibble with some of what they say I am confident that they are speaking the truth as they know it. On the other hand the former was widely regarded for years as a shrill victim of BDS and the second a crank that didn't understand how the Great Moderation may have solved all economic problems for all time (except Social Security which was irretrievably broken). (Link is to 2004 speech by Bernanke). That I believe that the 'facts' have proven Paul and Dean to be 'right' is in the end mostly just the result of things I have heard or read in documents and reports that I don't always have the means or time to independently check. Nor can I expect other people to just accept my judgement that the things they believe are 'right' on the basis of what they heard or wrote in documents or reports that they didn't independently check.

In the end it comes down to a question of credibility and authority. How do you convince the majority to accept what may be a minority opinion as in fact authoritative? I mean Copernicus was right, which didn't keep Galileo from being convicted of heresy for defending him. I don't know the answer to Linda's question. I do know it is not as simple as just appealing to the 'facts' and 'knowledge'. Both turn out to be more fuzzy and dependent on authority than we might wish.

Well one problem is that for the most part you come to both true knowledge and false knowledge in the same way by reading and hearing things from people whose authority you have learned to trust. For example the typical school child regards his textbooks and the encyclopedia as neutral sources of fact, as representing the ways things are.