Economics and bringing home the bacon.
So I’m reading this post by D at Cafe Hayek and come across this bit –
Market prices are not arbitrary. Prices are determined by the forces that economists comprehend with the theory of supply and demand. An attempt by government to change a price or wage from what that price or wage would be without government price controls at best masks the true price or wage – in the way that dressing up a woman to look like a man at best changes the woman’s outward appearance without altering her chromosomes. (Many proponents of minimum wages and other price controls – those proponents who deny that such price controls generate negative effects – are victims of the primitive superstition that the superficial appearance of something is the essence of that something.)
I walk over to my wife who is frying bacon and ask her, “Does this make people like Bruce Jenner a price control on the sexual/marriage marketplace?” A book in the 90s about dating and relationships called The Code¹ defined a false economy as “RuPaul.”
While thinking all this, my wife is lifting the first piece of bacon out of the skillet, and I ask her “Is it still hot?” She patiently points out that she’s taking it out of the skillet right now, so of course it’s hot. We both decided that I can’t process simple things while simultaneously pondering such things as economics.
Side note –
Bonus round – A Hayek Outside The Cafe
Example of comments by Stage Three people.
¹ A parody of The Rules
I’ve decided not to surf the internet anymore and just
steal from let Vodkapundit bring me my news. It’s the best source for stories about pantless intoxicated female schoolteachers. On her first day of work, no less.
Also of note is his his semi-regular commentary on the latest babytalk by juicevoxer Matt Yglesias. And by “commentary” I mean “smart-ass comment on how ridiculous Yggy’s article is.” Such as Yggy’s” case for a maximum wage.” He uses professional basketball as an example of how such a cap works, noting that the NBA has a salary cap and because of that, players are less motivated to sign with a team for money than for things like “teammate and title chances.” But here’s the kicker –
The most important lesson, however, is what the maximum salary doesn’t do — lead the stars to Go Galt and take their talents to the retirement community.
For starters, the top stars get paid a lot of money! But more than that, it turns out that to be successful at high-level professional basketball requires a certain level of passion for the sport and competitive instinct. Players want to win games and outshine their rivals on the biggest stages. Stars not only play for sub-market wages professionally, but they often play for free for their national team in the Olympics. Top performers like money, but they also take pride in a job well done.
This is followed by a recap of tax rates from World War II on, and the results of changes implemented during Reagan’s administration. Although there’s a comparison of the pre-Reagan and post-Reagan economies (yet nothing about the actual Reagan years), no mention is made of a cutoff point in the post-Ronnie years. Do we stop counting at 2000? Or do we include the dot-com bubble bursting and the endless post-2008 recession?
But don’t think about concrete numbers. What matters here is the feelings involved –
A related issue is raised by Facundo Alvaredo, Anthony Atikinson, Thomas Piketty, and Emmanuel Saez who find that lower tax rates have shifted incentives for executives at big companies such that effort is now “diverted to increasing their remuneration at the expense of enterprise growth and employment.” In other words, in a high-tax regime executives compete to run the biggest, best company for pride and glory whereas in a low-tax regime they compete to take home the biggest paycheck.
Because execs want to play for free every four years in the Executive Olympics. And have more pride and glory to distribute among their workforce.
I also get a kick out of caption beneath the last photo – “happy German factory worker.” Potemkin on the Rhine.
I could go into more problems with this piece, but it’s all ultimately irrelevant. Regardless of arguments for or against such a super-tax, it really comes down to two points –
Point one is that given the problems that come with a minimum wage, is a maximum wage really a good idea?
The second point comes down to property rights. If the NBA owners freely agree to cap their salaries, that’s their business. Imposing a tax by legislation is a different story. This was best summed up in the 80s by the legendary sage Bobby Brown –
I made this money, you didn’t
We outta here
Like her transactions, I’m anonymous.
Look at her reading the Economist’s
H/T Cafe Hayek, who gets all the cool digital-currency music videos.
Jesse Myerson posts at Salon Why You’re Wrong About Communism: 7 Huge Misconceptions About It (And Capitalism).
My favorite part is when he ends the piece with this claim –
…most of the greatest art under capitalism has always come from people who are oppressed and alienated (see: the blues, jazz, rock & roll, and hip-hop). Then, thanks to capitalism, it is homogenized, marketed, and milked for all its value by the “entrepreneurs” sitting at the top of the heap, stroking their satiated flanks in admiration of themselves for getting everyone beneath them to believe that we are free.
Cafe Hayek (where I found out about this) quickly and efficiently dismantles this claim –
Overlook the questionable claim that most great artists under capitalism were oppressed and alienated. (Were Lennon and McCartney, Berry Gordy, Duke Ellington, Leonard Bernstein, and Andy Warhol truly “oppressed and alienated”? How about Jackson Pollock? Thomas Hardy? Ernest Hemingway? Lawrence Olivier? Raymond Loewy?) Focus instead on the critical reality that, in fact, there are countless great artists, and Niagaras of profound art, produced under capitalism. The same cannot be said for communism.
The reason is simple. Capitalism supplies artists not only with abundant materials and media for producing and sharing their works, but also with the freedom and personal space for them to create. In stark contrast, communism necessarily prohibits would-be artists from pursuing their muses. All means of production under communism are owned by the state, and, hence, remain off-limits to artists whose individual plans do not mesh with the central plan.
I hadn’t seen Myerson’s piece when I did this post of my own earlier, but mine suggests a basic flaw in his claim – would a communist society permit a publishing house to print sympathetic stories about a character who fought for the enemy side in the biggest war it had ever seen?
He’s half right about great artists often being alienated and oppressed. But this isn’t political, it’s social alienation… sometimes actively rejected by peers, other times because of their own issues which have nothing to do with anyone else’s reaction to them. Artists are usually different from most people. If anything, capitalism helps them reach out and speak to other rare people like them.
There’s another way that capitalism has helped artists. In the 1950s, profits from their high-selling horror magazines allowed E.C. Comics to subsidize the science fiction books they wanted to do. Until Congress threatened to censor them, that is (shades of communism).
I wish more people understood the marvel of emergent order that makes the world around us not just orderly, but when the feedback loops are healthy ones, a source of delight and comfort. This video (HT: Caleb Cangelosi) says it very well. Much of what makes life pleasant is undesigned. This does not mean that all undesigned phenomena are good. It does not mean that the islands of design within the undesigned sea are unimportant; they are very important. But appreciate how we human beings are able to cooperate without explicit top-down coordination. – Russ Roberts
Today is the 100th anniversary of the day President Woodrow Wilson signed the income tax into law.
I knew I felt kinda down for some reason.
Prior to the creation in 1913 of the national income tax, about a third of Uncle Sam’s annual revenue came from liquor taxes. (The bulk of Uncle Sam’s revenues came from customs duties.) Not so after 1913. Especially after the income tax surprised politicians during World War I with its incredible ability to rake in tax revenue, the importance of liquor taxation fell precipitously.
By 1920, the income tax supplied two-thirds of Uncle Sam’s revenues and nine times more revenue than was then supplied by liquor taxes and customs duties combined. In research that I did with University of Michigan law professor Adam Pritchard, we found that bulging income-tax revenues made it possible for Congress finally to give in to the decades-old movement for alcohol prohibition.
Before the income tax, Congress effectively ignored such calls because to prohibit alcohol sales then would have hit Congress hard in the place it guards most zealously: its purse. But once a new and much more intoxicating source of revenue was discovered, the cost to politicians of pandering to the puritans and other anti-liquor lobbies dramatically fell.
Prohibition was launched.
Despite pleas throughout the 1920s by journalist H.L. Mencken and a tiny handful of other sensible people to end Prohibition, Congress gave no hint that it would repeal this folly. Prohibition appeared to be here to stay — until income-tax revenues nose-dived in the early 1930s.
From 1930 to 1931, income-tax revenues fell by 15 percent.
In 1932 they fell another 37 percent; 1932 income-tax revenues were 46 percent lower than just two years earlier. And by 1933 they were fully 60 percent lower than in 1930.
With no end of the Depression in sight, Washington got anxious for a substitute source of revenue.
That source was liquor sales.
We now have a top tax rate of 39.6 percent, and it’s actually much higher than that when you include the impact of other taxes, as well as the pervasive double taxation of saving and investment.
And the relatively simply tax law of 1913 has metastasized into 74,000 pages of Byzantine complexity.
Not to mention that the tax code has become one of the main sources of political corruption in Washington, impoverishing us while enriching the politicians, lobbyists, bureaucrats, and interest groups. Or the oppressive and dishonest IRS.
However, even though I take second place to nobody in my disdain for the income tax, the worst thing about that law is not the tax rates, the double taxation, or the complexity. The worst thing is that the income tax enabled the modern welfare state.
Before the income tax, politicians had no way to finance big government. Their only significant pre-1913 sources of revenue were tariffs and excise taxes, and they couldn’t raise those tax rates too high because of Laffer Curve effects (something that modern-day politicians sometimes still discover).
Once the income tax was adopted, though, it became a lot easier to finance subsidies, handouts, and redistribution.
Could it be that the institutional racism of Jim Crow occurred not despite the Progressive era but because of it? Not only did the Progressive reforms create new economic rents that could be exploited by whites and by the politicians who enacted those reforms, but many leading Progressives espoused views on racial purity and segregation that put them in the vanguard of the American apartheid system.
The authors continue –
Robert Higgs ( 2008) writes that despite racist views by whites and despite the residual interracial violence and discrimination that existed after the Civil War, black Americans made significant economic and social gains. Many of those gains, however, occurred before the onslaught of Progressive economic regulation and the imposition of Jim Crow.Thus, one cannot claim that the institutionalized racism that came with progressivism simply was based on residual racism that existed after the war, as though the racial attitudes of that time inevitably would end in Jim Crow.  2008. Competition and Coercion: Blacks in the American Economy, 1865–1914. Cambridge, U.K.: Cambridge University Press.]
The Davis-Bacon Act is a pro-union law that discriminates against non-unionized black construction contractors and black workers. In fact, that was the original intent of the Davis-Bacon Act of 1931. During its 1931 legislative debate, quite a few congressmen expressed their racist intentions, such as Rep. Clayton Allgood, D-Ala., who said, “Reference has been made to a contractor from Alabama who went to New York with bootleg labor. This is a fact. That contractor has cheap colored labor that he transports, and he puts them in cabins, and it is labor of that sort that is in competition with white labor throughout the country.”
Don Boudreaux at Cafe Hayek reports –
WASHINGTON (CH) – In a bold effort to improve the educational fortunes of students who perform at academic levels significantly below the average of their peers, Congress has mandated a minimum grade to be assigned to each student in each course taught at any school in the country. Starting in September, it shall be unlawful for any teacher, professor, or instructor charged with assigning course grades to assign to any student a grade lower than C-.
Sponsors of the Fair Academic Standards Act decry the injustice that occurs each time a student earns a low grade, such as a D or an F. ” It’s impossible for students with ‘D’s and ‘F’s on their transcripts to succeed as they deserve in life,” remarked Sen. Bernie Franken, an Independent from Elitia. ”This law ensures that no American will ever again suffer that hardship.”
…Sen. [Paul] Rand responds by insisting that grades should accurately reflect each student’s actual performance in class. He says that the minimum-grade requirement, to the extent that it doesn’t simply cause academically challenged students to be kept from enrolling in school, will result in report cards and school transcripts that are full of “lies” – grades that do not reflect each student’s actual performance.
…“That accusation is typical of Sen. Rand and his ilk,” alleges Paula Krueger, the influential columnist. ”Sen. Rand is bought and paid for by rich and privileged elites who know that a more fair distribution of school grades will threaten their and their friends’ hold on this country’s levers of power.”
…Not that Ms. Krueger thinks the Act is ideal. ”It’s not perfect. In my view the minimum grade should be much higher. I think A-. And I’d also like to see the minimum grade indexed to grade inflation. That way all students in America, now and in the future, would be exceptionally high-achievers and very well educated.”
Read the entire post.