Pay More Taxes - Session 101

A couple of weeks ago N. Gregory Mankiw wrote an article for the New York Sunday Times Business Section entitled “I Can Afford Higher Taxes. But They’ll Make Me Work Less”. This article which focused on Obama's intention to roll-back the Bush Administration tax decreases on people earning more than $250,000 per year annoyed me and I am curious if it has the same effect on others. More on this below, but I begin with my trip to the Vancouver International Film Festival to see “Inside Job”, a documentary about the 2007 – 10 financial crisis, how it began, evolved and the consequences.

Inside Job describes the meltdown of 2007 –2010 (not yet by any means over) in a raw and unvarnished perspective. Judging from the fact that the same cast of characters remain on the financial stage today in charge of the banks and as advisors to Obama, the problems are likely to be repeated. Most certainly we have failed to take advantage of the crisis to do some housecleaning. A great opportunity has been lost.

“Inside Job” informs us that amongst the perpetrators of this crisis include a small number of very influential economists who have advocated and lobbied for deregulation of the financial system. Several of them are professors at Harvard and other Ivey League universities who also consult to the US administration and various wall street banks, near banks and hedge funds. The Obama administration has retained in critical positions many of the economists and advisors who were responsible for, and in many cases profited from, the policies which led to this disaster.

Take for example, Larry Summers, ex-President of Harvard and also a professor in the School of Government (Harvard) who featured prominently in the film. He was an advisor to Bush and is currently an advisor to Obama. He resigned as president of Harvard after a vote of no-confidence by the faculty:

“that resulted in large part from Summers' conflict with Cornel West, financial conflict of interest questions regarding his relationship with Andrei Shleifer, and a 2005 speech in which he suggested that the under-representation of women in science and engineering could be due to a "different availability of aptitude at the high end," and less to patterns of discrimination and socialization. Summers has also been criticized for the economic policies he advocated as Treasury Secretary and in later writings. Since returning to government in the Obama administration, he has come under fire for his numerous financial ties to Wall Street.”

There are many others but I am limited by space and time. These economists, who are to say the least disingenuous, include Mankiw as demonstated by his article “I Can Afford Higher Taxes. But They’ll Make Me Work Less”.  In this article, Mankiw admits he is a professor at Harvard obviously to add some clout to his remarks. I thought I should look him up to see if he had any background on taxes or economics. Unfortunately (for him or me), anyone who writes a book titled “New Keynsian Economics: Imperfect Competition and Sticky Prices” is clearly an economist. Mankiw was also an advisor to Bush (Dubya).

Mankiw’s argument boils down to this. His income is more than $250,000 per year so he will have to pay more taxes if Obama rolls back the Bush tax reductions. He doesn’t have his own jet or Ferrari (allowing him to be piously self-righteous, even self-denying) so he can afford to pay the increased taxes. If requested to write an article for $1,000, he might not do it because the work would not be worth the pay (after tax). He provides some calculations - if there were no taxes, the $1,000 would be worth $10,000 in 30 years; with Obama’s planned roll-back and his kids would get $1,000 (after tax) in 30 years; and lastly in the current regime [assuming lower income taxes, lower medicare taxes, no deduction phaseout (whatever that is) and no estate tax], his kids would get $2,000. Conclusion – he would have twice the incentive to keep working. He says:

“Now you might not care if I supply less of my services to the marketplace — although, because you are reading this article, you are one of my customers. But I bet there are some high-income taxpayers whose services you enjoy.

Maybe you are looking forward to a particular actor’s next movie or a particular novelist’s next book. Perhaps you wish that your favorite singer would have a concert near where you live. Or, someday, you may need treatment from a highly trained surgeon, or your child may need braces from the local orthodontist. Like me, these individuals respond to incentives. (Indeed, some studies report that high-income taxpayers are particularly responsive to taxes.) As they face higher tax rates, their services will be in shorter supply.”

Judging from this article, Mankiw is one of the entitled libertarians who figures that the emergence of Wall Street as the economic engine of the country and the simultaneous decline of the production of real things which show a much lower rate of return is progress.

No wonder we don’t trust economists. Let’s hypothesize for a moment that the additional taxes raised from people like Mankiw who, by their own admission, can afford to pay them, will be used to provide more education so we will have more doctors or orthodontists who will provide more services.

Furthermore, who are the people going to concerts, reading books and spending money on goods and services – the 1% of people who earn more than $250,000 or the 99% of people who earn less?

Where are these studies showing higher taxes will result in less productivity? Especially if lower taxes result in cuts to education and create more social conflict.

And of course, there is much more to economics than number crunching. Some economists are even paying attention to human behaviour. According to a more recent article in the NYT by David Segal (also an economist) (which refers to Mankiw):

“… a certain amount of psychological guesswork is part of an economist’s job, which accounts for the rise in popularity of behavioral economics, an effort to account for the slippery, indefinite nexus of money and humans. ‘The entire question of how emotion will change people’s behavior is pretty much outside the standard model of economics,’ said Dan Ariely, a professor at Duke University and author of “The Upside of Irrationality.””

It seems Mankiw is prepared to ignore this and cite his own preferences and anecdotal evidence plus ignoring his own bias to advocate that tax reductions should not be rolled back .

In the past few years, millions of people have lost jobs, life savings and their homes while the rich get richer – and this is no myth or whine – Robert Reich, one of the less conservative crowd advising Obama – in his new book “Aftershock: The Next Economy And America's Future” – points out that 1% of people own 23% of the wealth in US. The gap between the median income and the top 1% is growing as well, and the proportions have never been so high since 1928. The wrath of the American public is simmering and may soon boil over.

And there is the deficit or doesn’t anyone care about it anymore? More taxes could even be used to reduce it. Or is the US so far gone that there seems no point even trying to reduce the deficit?

Sure, if you are a narcissist earning $250,000, as Mankiw admits, you may be better off personally if your taxes are not raised. But I am confident that it is a lot worse for the rest of us. And eventually, the mess with catch up with Mankiw’s kids who will have to contend with a society deprived of its middle class and suffering the social strife that goes along with this. Their extra $1,000 is going to look like peanuts.

I am curious why the New York Times gives credibility or coverage to Mankiw. It is rumoured that Mankiw quit his post with the Times because the Times only pays $650 per article and that is just not enough to justify his effort if the tax cuts are not extended. I have to say, I think in the case of Mankiw, the NYT has overpaid.

Don't Read Books!

I took the summer off from blogging and lost my little “ideas” notebook so I have to start from scratch. Losing my notebook was almost as devastating as losing my diary, though my diary from age 8 to 10 contained only one line.

This week in The New York Times Review of Books, Kwayme Appiah reviews “The Moral Landscape – How Science Can Determine Human Values” by Sam Harris. According to the review, “Harris heads the youth wing of the New Atheists”.

Stephen Jay Gould, the evolutionary biologist, has received a lot of attention over the past several years for his books and articles denying the existence of God. 
I had heard of Gould and even read about ½ of one of his books, still in my modest science library which I bought this during my “you should learn more than physics” stage of life. Gould too is an atheist but says of science and religion – never the twain shall meet. Harris attempts to demonstrate, from the review unsuccessfully, that the facts about the well-being of conscious creatures can be derived from science, especially neuroscience. 

 The reference to Gould in the NYT Review of  Books and the review of Harris' Moral Landscape gave me pause for thought.  I thought do I really need to read either Harris or Gould?

Being a person of limited time and resources, I have often wondered whether it is better to read the reviews of books by these authors, than reading the books themselves. This likely applies more to non-fiction than to fiction. After all, reading a review of “The Girl Who Played with Fire” (originally “Men who hate Women”), is hardly the experience of reading the book – or seeing the movie (I recommend both).

I retrieved from my library - which admittedly consists of only a few selected books as most have been in storage for at least 10 years - a book by Pierre Bayard titled “How to Talk About Books You HaveN’T Read.” I noted the bookmark was inserted at page 48 whereas the book has about 150 pages; I obviously took the author to heart. Nonetheless, I recall enjoying the first few chapters.

The preface begins with:

“Born into a milieu where reading was rare, deriving little pleasure from the activity, and lacking in any case the time to devote myself to it, I have often found myself in the delicate situation of having to express my thoughts on books I haven’t read.


Because I teach literature at the university level, there is, in fact, no way to avoid commenting on books that most of time I haven’t even opened. It’s true that this also the case for the majority of my students, but if even one of them has read the text I’m discussing, there is a risk that at any moment my class will be disrupted and I will find myself humiliated.”

Would I be stretching the truth to say few of us want to be humiliated but most of us want to be interesting and well-read. At least to page 48, Bayard’s book is very amusing and I probably skimmed the chapter titles of the rest of the book Fortunately each chapter has a little key idiom beneath the chapter title, almost eliminating the need to read the text.

From a brief review of Bayard’s book:

“A must-read for anyone who cares about books.”

I feel I let the reviewer down, but not Bayard.

Book reviews are extremely useful, however, for a variety of reasons: (a) they can be interesting; (b) they serve the purpose of allowing one to talk knowledgably about a book without struggling through it; (c) if the review is bad you can avoid buying the book [after all, you have already paid for the Globe or the NYT Review of Books] and you can impress your acquaintances by telling them not to buy the book; (d) etc.

In the review of “The Moral Landscape”, I learned about Sam Harris’ 2 previous books on the same topic so no longer need to read them and also learned about Gould, so no longer need to read him either (saving at least $75 plus tax and much space in my already cluttered attic office). In fact the reviewer’s comments about the new book and the 2 previous ones are as follows:

“I found myself wishing for less of the polemic against religion, which recurs often and takes up one entire chapter — he has had two bites of that apple already, and will soon be reduced to gnawing at the core — and I wanted more of the illumination that comes from our increasing understanding of neuroscience.”

I think I will leave gnawing at the core to those with more time and reach American Science for information on neuroscience.

How is this for a page turner – “The Shadow Market – How a Group of Wealthy Nations and Powerful Investors Secretly Dominate the World”. A catchy title but a smidge too long; one wonders whether you need the rest of the book: From the review this week in the NYT:

“The trouble is the delivery. A sober book like “The Shadow Market” is never going to read like a Crichton potboiler, but it veers too far in the other direction, often sounding like a report for the Council on Foreign Relations. There is too much survey and not enough analysis.”

I think I will take a pass on this one, but good cocktail conversation depending on the crowd.

Let me be perfectly frank here. I often do not agree with positive and glowing reviews of books or movies. My friends know me as a sceptic. For example, I thought it might be fun to see what reviewers have to say about the book “A Beautiful Mind” a biography of John Nash, the mathematician who made advances in game theory, suffered a breakdown and then got the Nobel Prize. The 457 pages of the softcover version tell us much, much too much, about every minor detail of Nash’s life. I did not leave a bookmark in this book. The movie was Hollywood entertainment. From the Boston Globe:

“Superbly written and eminently fascinating.”

One review which I dug up on a google search says:

"The New York Times book review says A Beautiful Mind "reads like a fine novel." Except, a fine novel doesn't have endnotes plaguing the entire text. Sylvia Nasar must be German. If not at the end of every sentence, at least at the end of every line of thought, there lies an endnote. (The Germans are famous for documenting everything to distraction; this is not a stereotype.) The book is ridiculously over-documented. (For example, Chapter 1 alone, which is only 15 pages long, has 63 endnotes!) This is terribly distracting for me as the reader, especially considering that hardly any of the notes actually elucidates anything; just documents, documents, documents, as if it were a college thesis."

You can imagine which review I preferred. If anyone cares to borrow A Beautiful Mind, please email me.

By the way, if you are not satisfied with the short, but sweet, reviews in the NYT, you can go for the more intellectual and far, far longer reviews in the New Yorker.  Not sure if anything of interest emanates from west of the Rockies.

Enough of this – if have you read Bayard’s book, you will unlikely have gotten this far in my own too fully documented blog.

Back to serious stuff next time.