Monday, September 26, 2011

D. Friedman vs D. Brin

[Here's a link to Brin's post and the comments, including mine, courtesy of Chris Hibbert]

I've been having an exchange on Google+ with David Brin, started by a post of his that began:
Is it "class war" to reset tax levels to the levels of the prosperous 1990s?

I pointed out that, according to the CBO figures, the top quintile of the income distribution was paying a slightly higher average federal tax rate in 2007, the last year for which I could find CBO data, than in 1990, while the bottom quintile was paying about half the rate in 2007 it was paying in 1990, and asked him if what he was proposing was doubling the taxes on low income taxpayers.

My point, of course, was that although there is lots of rhetoric about the rich paying low taxes, what actually happened over the past twenty years was a sharp cut in federal taxes for the lower half of the income distribution.

Brin responded with:

Quintiles are utterly utterly misleading. 90% of the people in the topmost quintile still earn most of their income from wages, not dividends or capital gains. Try the top 5% and 1% and 0.1% and include shelters overseas (estimated.) This is exactly the kind of razzle dazzle switcheroo you should be wary of and have spotted for yourself.

To which I replied by quoting his post, followed by:

I don't think I'm the one offering razzle-dazzle--and I note that while you ask me to look up data, you don't actually offer any.

As you could easily have discovered if you looked up the numbers yourself, the CBO figures for 2007 show the top 1% paying an effective federal tax rate of 29.5%. The figure for 1990 is 28.8%.

The bottom quintile, on the other hand, paid an effective rate of 8.9% in 1990. In 2007, it was 4.0%.

So you have your facts backwards, at least so far as I can tell from the CBO figures--if you have something better, feel free to offer it. The effective rate on the bottom quintile has been cut in half since 1990, on the top 1% it has increased a little. I have no idea, and you don't say, what your source is for "shelters overseas (estimated)," but I suspect it's bluff--do you have figures showing that the top 1% is sheltering much more of its income now than in the 1990's? That's what your argument requires.

Let me repeat my question, since you didn't answer it the first time. You suggest rolling back tax levels to what they were in the 1990's. Does that mean that you want to double taxes on low income taxpayers, to get them back to where they were then? That's the big change, after all.

My figures are only up to 2007, since that's all I could readily find from the CBO; my guess is that the 2010 figures, if I could find them, would show a lower tax rate than in 2007 for all groups, since the current Administration has financed its budget largely with borrowing. But the big change from 1990 would still be the sharp drop in the effective tax rates paid by the lower part of the income distribution. For some reason neither you nor Obama seems to have noticed that--or at least let it interfere with your rhetoric.

Brin has so far not responded. I'm waiting to see if he will support his claims, concede error, or simply leave the argument unanswered. The fact that his response to my first post was, so far as I can tell, pure bluff--no data, just the implication that if one looked at the data it would support his beliefs--is disturbing. 

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David Henderson has a link to a piece that goes into much more detail than I have and finds that the tax system has been becoming pretty steadily more progressive over the past fifteen years, under both Democrats and Republicans.

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The argument continues. For those who don't want to follow the link at the top of this and then search through the comments, here is my most recent response (to two of his):

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David B. writes:

In fact I agree that taxes for everybody are lower now than they were in the 1990s.”

Because current spending is financed by borrowing. Which, absent a default, will eventually have to be paid for by higher taxes.

That was not however the point of my comments. My point was that taxation has become more progressive since the 1990’s, when you and lots of other people, including Obama, want to claim it has become less. Do you agree with that? If so, why have you gone to so much trouble, with your handwaving about the top 1% and tax shelters, to deny it?

“Put this in the context of 6000 years of history …”

More evasion. If I can’t get you to face demonstrable facts about taxation in the U.S. over the past few decades, I doubt that arguing with you about the past 6000 years of history would be very useful.

You keep trying to make this an argument about whether one supports or opposes the policies of the Bush administration. I didn’t vote for Bush, didn’t approve of his policies at the time, and don’t approve of their continuation by Obama, so you can have that argument with someone else. I’m simply trying to get you to face the fact that the federal tax system has gotten more progressive over time, not less.

And when I point you at evidence that that’s true, your response isn’t to try to rebut it, or even to understand it, but to talk about “you guys” and try to change the subject to your grand theories about America. If I’m going to argue about grand theories, I would prefer to do it with people who care whether the facts they use in their arguments are true or not.

“You even seem to implicitly say that tax rates SHOULD be progressive. Of course they aren't. Look closely.”

I have said nothing at all about whether tax rates should or shouldn’t be progressive. I’ve merely been trying to establish what they are, and how they have changed over time.

“Most of these right wing "studies" incorporate corporate taxes INTO the recipient's claim of taxes paid, under the bizarre incantation that this envelopes what the call "double taxation."”

Does that include the “right wing studies” by the Congressional Budget Office? Have you looked at their figures on the federal income tax alone? That by itself is highly progressive. That plus payroll taxes—which they treat as entirely a tax on the employee—is still progressive, although not as progressive.

How progressivity has changed over time requires a little effort to determine, and you would rather demagogue than make that effort. To see that the federal tax system is progressive, under any plausible assumption about incidence, requires only the ability to read and do arithmetic. But it apparently doesn’t fit your current ideology, whatever that may be.

I am curious, however, as to who you believe pays corporate income tax, since you think the notion that it comes out of money that would otherwise go to dividends and capital gains is bizarre. Is it just manna from heaven?


66 Comments:

At 8:46 AM, September 26, 2011, Anonymous Chris Hibbert said...

The date on the top line of a Google+ post has a link under it. Here's Brin's post:

https://plus.google.com/116665417191671711571/posts/bL3wv3z2WaA

 
At 8:49 AM, September 26, 2011, Blogger VangelV said...

For what it is worth it is my guess that Brin will leave the argument unanswered. If he has to deal with the facts as they are he will either have to say that he was wrong or admit that he is an ideologue who is not interested in the facts. Neither of these options are easy to take.

 
At 9:08 AM, September 26, 2011, Blogger Antonio Giamberardino said...

So then, as someone who watches your (i.e., American) political machine from afar, I have to ask: where *does* this rhetoric come from? Is there a way of re-interpreting the numbers to make the tax burden appear less in 2007? Maybe "top 1%" as opposed to "top quintile?"

 
At 10:07 AM, September 26, 2011, Blogger Gordon said...

Could it be that Brin's comment about "dividends or capital gains" suggests that he thinks the CBO information you point to does not include "all" income? (I assume that it does so incldue, but "income" might be ambiguous.)

 
At 11:20 AM, September 26, 2011, Anonymous Douglas Knight said...

Why are you quoting the 1990 rate when Brin talked about the 1990s rate? Ignoring you seems like the correct response.

 
At 11:21 AM, September 26, 2011, Blogger David R. Henderson said...

David, I notice that David Brin bills himself as "Advocate for a Transparent Society.” Well, maybe not THAT transparent, you know, actually looking at published data.

 
At 11:30 AM, September 26, 2011, Blogger Brandon Berg said...

By '90s, I assume he means after the 1993 tax hike.

Also, effective tax rates can be misleading, because these can change quite a bit without any statutory changes due to macroeconomic changes.

The trillion dollar question (literally!) is whether Brin supports returning to the spending levels of the prosperous '90s. Government spending as a percentage of GDP was several percentage points lower than it is now.

 
At 12:23 PM, September 26, 2011, Blogger Matt Ruff said...

As you could easily have discovered if you looked up the numbers yourself, the CBO figures for 2007 show the top 1% paying an effective federal tax rate of 29.5%. The figure for 1990 is 28.8%.

As others have noted, "the prosperous 1990s" is probably a reference to the Clinton years. A quick Google of the CBO figures says that between 1993 and 2000, the effective tax rate for the top 1% ranged from a low of 33.2% to a high of 36.1%. The lowest quintile ranged between a high of 8.0% (in 1993) and a low of 5.6% (in 1996).

 
At 12:33 PM, September 26, 2011, Anonymous TJIC said...

I met Brin once, at a signing. I started to ask a question: "A few years back your published an article on the electoral college in Liberty magazine -"

He cut me off before I even got to the question, and went on a 30 minute tirade about how libertarians are trying to destroy everything good in the universe.

I've been singularly unimpressed with his fairness and critical thinking skills ever since, and went from being a huge fan to never purchasing one of his books since.

I wouldn't expect anything fair or useful to come from a debate with him.

 
At 12:49 PM, September 26, 2011, Anonymous Anonymous said...

This reminds me of your exchange with Mike Huben in the late 90s. His tagline for the exchange: "A disappointingly standard selection of weak libertarian arguments. Better than the other criticisms, but that's a very low hurdle. A response is planned."

I think we are still waiting for Mike's response as well.

http://world.std.com/~mhuben/critfaq.html

 
At 2:58 PM, September 26, 2011, Blogger dlr said...

As far as I'm concerned "progressive tax rates" come under the same rubic as "affirmative action", and "land reform". They are misleading, fair sounding phrases for an ugly truth -- theft and discrimination.

There is nothing "progressive" about taxing two different people at two different rates. Someone in a high tax bracket (not me, alas) either worked very hard for the money, inherited it, or stole it. If he stole it, prosecute him, or change the laws (good luck) otherwise, "progressive tax rates" are just forced expropriation. There is nothing just or moral about it. It's just a gang of thieves (aka 'voters') ganging up on someone and stealing his money. It may be legal, but it sure ain't right.

 
At 3:40 PM, September 26, 2011, Blogger alex said...

"To begin with, I'm not a conservative--considerably less of one than you are."

Hahaha!

 
At 6:51 PM, September 26, 2011, Blogger David Friedman said...

"Progressive" taxation strikes me as a clever case of a play on words used for rhetorical effect. It's a literal description of a graduated tax where rates rise with income, since the rate on brackets "progresses." But it also implies that such a thing is "progressive" in the sense of representing an improvement, progress.

I agree that Brin's claim wasn't explicitly about 1990, and he could have responded to my post by offering data supporting his position for a later year in the decade. But he didn't; instead he implied that the results would be different if I looked at the top 1% instead of the top 10%, which turned out not to be true. Having checked the numbers for one year I didn't see much reason to go further before I got a substantive response from him.

Looking at the data for the later 90's now, I think if he had raised that issue my response would have been that the rates then were higher on both high and low income taxpayers, due to the fact that Bush, like Obama, borrowed a lot instead of taxing--but that the ratio of the rate on the top 1% to the rate on the bottom quintile has gone up, not down.

I now have another response from him, in which he continues to evade.

As to whether there is a way of interpreting the data that supports the Administration position, the closest I can suggest is by looking at 2010 data, and finding, what is probably the case, that the average tax paid by the top 1% is lower than during the nineties. The problem with that argument, as I already suggested, is that tax rates in general are low at the moment because the Administration is financing almost 40% of the budget by borrowing instead of taxing. If instead of looking at the tax rate for the top 1% by itself you look at how it compares with the rate for (say) the bottom 20%, my guess is that the pattern would still be what I described--but I can't be sure, because I don't have the data for 2010.

I think Brin's point about dividends and capital gains is merely that he thinks they are taxed at a lower rate than ordinary income. In what sense that's true is rather complicated. But they are included in income, as one can see by going through the tax form, so any lower rate should be reflected in the figures I've been citing.

To put it differently, you are giving Brin too much credit. As best I can tell he doesn't have any data to support his position and never did, merely a conclusion.

 
At 6:52 PM, September 26, 2011, Blogger Josh Jordan said...

Brin had a devastating counter-argument, but unfortunately the margin of his Google+ account was too small to contain it.

 
At 9:27 PM, September 26, 2011, Anonymous Anonymous said...

The argument here seems to be over personal tax rates. For shareholder income (dividends and capital gains), corporate taxation is also highly relevant. The income is taxed first at the corporate level (35%) and then at the personal level (15%), for an effective total rate of about 45% -- substantially higher than the rate paid by Warren Buffett's secretary.

Corporate taxes are paid by shareholders. Some people would claim that they are also paid by the employees of the company. Not true, since all employee compensation is deductible for purposes of calculating corporate taxes. Interest payments to bondholders are also deductible in the same way. It is the shareholders who pay the corporate taxes.

I understand David's point (previously mentioned) about the fact that corporate taxes shift the state of the entire economy, so that if you did a comparison of an economy with and without a certain corporate tax (comparative statics), you would find that everyone's income and expenditure patterns have shifted due to the corporate tax. In this sense, various people other than the shareholders do pay (or profit from) the corporate tax. However, this is true of all taxes, and indeed all prices, so claiming that various people other than the shareholders pay the corporate taxes simply leads to lack of clarity in expression. I would propose that you pay a tax, if an account that you own is decremented by the process of paying the tax.

 
At 10:20 PM, September 26, 2011, Blogger Marcel said...

This is normal for Brin... a lot of noise but very little substance.

 
At 7:12 AM, September 27, 2011, Blogger David Friedman said...

"I would propose that you pay a tax, if an account that you own is decremented by the process of paying the tax."

You are correct in saying, earlier in your comment, that the problem in allocating corporate taxes applies to other taxes as well. But your solution hides the problem without solving it.

Consider payroll taxes. By your definition, half is paid by the employer and half the employee, at least if you are willing to treat money owed by the employer to the employee (from which half the payroll tax is withheld) as an "account" of the employee.

Isn't it obvious that the distinction between the two halves is purely nominal? The total is a tax on the transaction of paying a worker--why does it matter how much of it is paid by the employer directly before he gives the worker his wage, and how much paid out of what he gives the worker?

 
At 8:50 AM, September 27, 2011, Anonymous Anonymous said...

Dr. Friedman,

"Isn't it obvious that the distinction between the two halves is purely nominal?"

You're right.

Obviously, the idea that the company pays half the Social Security tax, and the employee the other half is a pure formality that hides the actual substance of the transaction.

The subject is trickier than I thought. I would like to find a mechanical rule that tells who beneficially pays any given tax, but does not go so far as to consider elasticities of supply and demand. I guess I don't have such a rule, yet. If anyone does, I would like to look at it.

My intuition is that a corporation itself never pays any tax. All taxes formally paid by a corporation must be ultimately attributed to some real person.

The corporation deducts individual income tax and sends it straight to the government. Yet, this fact is of no consequence in deciding who actually pays the individual income tax. Any mechanical rule that decides who beneficially pays a tax would also need to handle such cases as this correctly.

 
At 9:40 AM, September 27, 2011, Anonymous Anonymous said...

Mr. Brin is insane, the disease: ideology (a more socially acceptable form of religion).

 
At 9:56 AM, September 27, 2011, Blogger Milhouse said...

My intuition is that a corporation itself never pays any tax. All taxes formally paid by a corporation must be ultimately attributed to some real person.

This is obvious from the fact that corporations are not themselves people; they are merely abstractions standing for all their shareholders. It is useful to treat them as if they were individuals, but that is merely a shorthand, a trick for convenience. A 12-pack of soda may be treated as one item at the "ten items or fewer" check-out, but that doesn't make the 12-pack an object in its own right, independent of the 12 cans that make it up. You can't drink a 12-pack; you can only drink the 12 individual cans. To claim that shareholders don't pay corporate tax is like claiming that you didn't buy those 12 cans, and they still belong to the supermarket!

 
At 9:56 AM, September 27, 2011, Anonymous Anonymous said...

Getting back to the discussion of who pays what taxes ...

Proposed terminology rule:

In the context of production by a corporation, whenever a tax is paid based on income to a factor of production, we say that the tax is paid by that factor.

This rule makes it so that the corporation itself never pays any tax.

The rule would imply that Social Security taxes are paid by the recipient of the income.

The rule implies that income tax on rent received by a landlord renting to a corporation is paid by the landlord.

The rule implies that tax on interest income received by creditors of the corporation is paid by those creditors.

The rule implies that income tax withheld and sent to the government is paid by the employee.

The rule implies that shareholders pay the corporate tax (since the shareholders own the corporate bank account).

So the rule is a way to consistently allocate taxes paid in relation to corporate activity, and which has the corporation itself paying no tax.

(The rule doesn't say who, e.g., pays a sales tax.)

This rule gives a mechanical criterion for deciding who pays these taxes, "in the first instance". A more economically realistic analysis would, as Dr. Friedman said, consider how taxes shift behavior of the entire economy.

 
At 1:45 PM, September 27, 2011, Blogger David Friedman said...

"I would like to find a mechanical rule that tells who beneficially pays any given tax, but does not go so far as to consider elasticities of supply and demand."

I would like to find a procedure for squaring the circle with compass and straightedge.

Go back to the payroll tax. It could be structured as a tax entirely on the employee or as a tax entirely on the employer. I think you agree, at this point, that the actual effect is the same either way. To know the real effect, you have to figure out its effect on wages, which depends on elasticity.

 
At 1:55 PM, September 27, 2011, Anonymous Laird said...

The issue of the incidence of the corporate income tax is not new (I myself wrote a paper on it in law school back in the 1970s, and I certainly plowed no new ground). A corporation is merely a conduit of cash flows, a convenient fiction, but the actual burden of the tax must, and can only, fall on an individual somewhere. It might be the shareholders (lower dividends), or the employees (lower wages), or the customers (higher prices), but it must be some combination of those three. The problem is that one can never know exactly where it will fall, as that is a function of other factors which vary from industry to industry and over time.

As to the progressivity of the income tax over time, I find that a relatively unimportant issue. What really matters (from an economic perspective) is the degree of *stability* in whatever rate structure is selected. People will adjust their activities to any given rate schedule.

From 1950 to 2011 the top marginal rate has swung from a high of 92% (1953) to a low of 28% (1988), and there has been a bewildering array of credits, deductions, minimum and maximum taxes, phase-outs, etc. Yet throughout that entire period total governmental income tax revenues have averaged around 18% of GDP, without a huge amount of variance. Clearly, the actual rates don't matter much. We, as a people, have decided that that's all we're willing to permit our government to confiscate from us. Government needs to adjust its spending accordingly, not persist in its futile attempts to tax more than that.

It's always instructive to ask those who argue for "higher taxes" what their objective is. They'll usually say more governmental revenue. But higher tax *rates* never lead (permanently, anyway) to increased revenues, whereas lower ones do. (Yes, that's the Laffer Curve. Deal with it.) Kennedy proved it; Reagan proved it; no one has ever disproved it. When you pin them down, most such people are less interested in governmental revenues than in their perception of "fairness". They'd rather we all be poorer than some be relatively richer. I suspect that's true of Brin. Revenue isn't the issue; redistribution is. But until you can pry that out of them debate is pointless.

 
At 2:16 PM, September 27, 2011, Blogger Neolibertarian said...

The most discouraging aspect of this is exactly the aspect that Brin notes. Friedman is caught up in a game of nit-pick gotcha, seemingly without a clear understanding of the broader context outside his own ideological bubble.

 
At 6:39 PM, September 27, 2011, Anonymous Anonymous said...

Who pays what taxes ...

"To know the real effect, you have to figure out its effect on wages, which depends on elasticity."

I agree with this. There's a classic calculation to find, e.g., who pays a sales tax. The supplier and demander have different prices, with the tax being the difference. You can use the elasticities of supply and demand to do a simple calculation to determine who pays what fraction of the sales tax. You calculate the how much the supplier and demander prices differ from what the price would be without the sales tax. This is straightforward. It purports to tell you the real impact on you if a certain tax is to be imposed.

However, in the national debates about tax rates, this approach is not used. Instead, everyone talks about tax rates on things like earned income, dividends, and capital gains. So we need a rationale to say who pays certain taxes "in the first instance", when someone else formally pays the tax. The corporation formally pays part of your Social Security tax, but for purposes of these debates, you pay it "in the first instance". We can justify that statement by saying that we are using the convention that each factor pays the taxes that are imposed on it based on the income paid to that factor. It's basically just a trivial point of terminology.

 
At 7:56 PM, September 27, 2011, Blogger VangelV said...

The most discouraging aspect of this is exactly the aspect that Brin notes. Friedman is caught up in a game of nit-pick gotcha, seemingly without a clear understanding of the broader context outside his own ideological bubble.

Nonsense. Brin can't argue on the facts so he and his ideological apologists talk about, "a clear understanding of the broader context outside his own ideological bubble."

Deal with the facts first. If you can't do not resort to charges of ideological bubbles and lack of understanding of some imagined broader context. Those are just weasel words that try to hide the fact that Brin and his camp are empty suits who know far less than they think that they know and that what they think they know is usually wrong.

 
At 6:58 AM, September 28, 2011, Anonymous Simon said...

Ah, yes, the broader context! When liberals are wrong they are still right... in a larger sense.

 
At 4:03 PM, September 28, 2011, Anonymous John said...

"Neolibertarian" was either kidding or gritting his teeth when he wrote that. Have you guys noticed that ideologues are now the first to cite ideology in their political opponents? By insisting that the facts Brin uses to make ideological points are actually correct, David is failing to overcome his own ideological biases? lol. People tip their cards when they do things like this; you can tell that they learned it rhetorically rather than substantively. Unintentional comedy fuh' dayz.

 
At 5:30 PM, September 28, 2011, Blogger Neolibertarian said...

Not at all. I'd be happy to have an extended debate with an ideological armchair economist. It hardly seems like something that Friedman would be interested in doing.

To phrase this in a way that you might understand, Friedman is clearly picking nits with people who have actual status in an attempt to raise his own, and signal to others that he has status as well.

Outside of his ideological bubble, which is dominated by simplistic thinking, Friedman's status as an economist is almost non-existent.

The irony here is that despite the fact that Brin has even less credentials as an economist than Friedman, his status on economic matters is higher than Friedman's.

Again, if Friedman were interested in an extended economic discussion about the fallacies and foibles of his ideological fundamentalism, I'll be happy to oblige.

I expect that offer won't be taken up.

 
At 7:07 PM, September 28, 2011, Blogger VangelV said...

To phrase this in a way that you might understand, Friedman is clearly picking nits with people who have actual status in an attempt to raise his own, and signal to others that he has status as well.

Status? You have to be joking. Brin is a Keynesian. Nobody can raise his status by showing that a Keynesian is clueless about economics because those that already know that understand that it is obvious and the Keynesians cannot ever accept the truth.

 
At 9:12 PM, September 28, 2011, Blogger Neolibertarian said...

Brin is a Keynesian. Nobody can raise his status by showing that a Keynesian is clueless about economics because those that already know that understand that it is obvious and the Keynesians cannot ever accept the truth.

Ah, the voice of the ideological bubble speaking. It's almost as if you weren't aware that Milton Friedman was a follower of Keynes. To the extent that his economics differs from that of Keynes is a mater of marginal degree, not kind.

 
At 2:23 AM, September 29, 2011, Anonymous DDR said...

Obama is calling for higher tax rates on the wealthy. One amusing aspect of this is that Obama himself pays a very low tax rate. The reason is that he gets big in-kind income from his job that is not taxed -- living in a palace, having an army of personal servants, flying around in fleets of government jets. Even Michelle's trip to Madrid involved several government jets and a large number of personnel. Obama could do his job without most of these bennies. And he's not taxed on them. So, Obama's own personal tax rate on his income is probably in the single digits.

 
At 4:57 AM, September 29, 2011, Anonymous John said...

Neo,

I'm under the impression that VangelV is a Rothbardian/Misesian who is critical of M. Friedman's economics. I mention this to get it out of the way.

So far you've been specific about what you believe D. Friedman's motives are. Being specific about economic mistakes you believe he makes, examples of simplistic thinking (your words) in his writing etc, would be useful. There would be exposure for those reading his blog who would like to avoid mistakes, and the odds David is moved to respond improve.

 
At 5:29 AM, September 29, 2011, Blogger VangelV said...

Ah, the voice of the ideological bubble speaking. It's almost as if you weren't aware that Milton Friedman was a follower of Keynes. To the extent that his economics differs from that of Keynes is a mater of marginal degree, not kind.

There is nothing ideological about it. Keynes was a muddled thinker who made many errors. While his followers were smarter and improved on his thoughts they are still barking up the wrong tree. The central planning and top down control that they have favoured has proved to be a major failure. And Milton was more of a Fisher/Knight disciple. While he made a number of errors he was a much better economist than Keynes.

 
At 7:32 AM, September 29, 2011, Blogger David Friedman said...

"It's almost as if you weren't aware that Milton Friedman was a follower of Keynes."

Oddly enough, I wasn't aware of that either.

Perhaps you are remembering Time quoting my father as saying "we are all Keynesians now?" The full quote was "In one sense we are all Keynesians now, in another none of us are Keynesians any more."

 
At 7:46 AM, September 29, 2011, Blogger Neolibertarian said...

Oddly enough, I wasn't aware of that either.

That's not surprising. You're your father's son, not your father. The primary difference between Keynes and Friedman is the focus on price stability versus currency stability. Otherwise, Friedman's work is entirely cauched in the framework laid down by Keynes. Suggesting that Friedman wasn't a follower of Keynes is like suggesting that Einstein wasn't a follower of Newton.

 
At 8:07 AM, September 29, 2011, Blogger Ryan Wills said...

Wow.

The intellectual mobius strip one must have to go through to pejoratively label a blogger an ideologue and yet be so consumed by their own ideology that they, quite verbally, presuppose that they know the ideological stance(s) of that person's father better than the person himself...is just absolutely stunning.

 
At 8:17 AM, September 29, 2011, Blogger Neolibertarian said...

Ryan,

If you'd like to argue that Friedman's economics were independent and distinct from Keynes, you're welcome to do so. If you actually read Friedman's economic work though, you'll find the intellectual debt explicitly acknowledged, and the language, terms, and mathematics used to discuss economics to be the language of Keynes.

To the extent that Friedman refined some of Keynes economics, that is generally a response to empirical findings which indicate a need for certain adjustments.

As I said above, Friedman is distinct from Keynes in marginal degree, not kind.

 
At 10:05 AM, September 29, 2011, Blogger Ryan Wills said...

I think you're being too charitable regarding the comparative difference in what would qualify as difference of "degree" and "kind" then, in that respect. More broadly construed, many economic schools of thought share minimal if not artificial differences with one another. It would still seem that it's the mutually exclusive parts of methodology, theory, and/or conclusion that define the differences in said schools of thought, not the 98% they hold in common.

If you want to use the terms more broadly and not give a nod to those differences, that's fine as far as it goes. But I don't think it stands in the way of other people who do wish to make such differentiations.

 
At 10:09 AM, September 29, 2011, Blogger Ryan Wills said...

This helps illustrate some of the fundamentally mutual theoretical territory as well as many of the explicit differences:

http://www.auburn.edu/~garriro/fm2friedman.htm

 
At 11:16 AM, September 29, 2011, Blogger Neolibertarian said...

More broadly construed, many economic schools of thought share minimal if not artificial differences with one another.

Quite right. And the degree to which ideologues play up these relatively minor differences is an academic travesty. The extent to which Keynes' economics reach different conclusions than Friedman's is fairly small. The lesson here is that it's generally more interesting to discuss and debate on the boundaries and differences than it is to endlessly agree about things we all agree on.

However, choosing to discuss the differences in no way makes the overarching similarity and congruences invalid.

The web page you linked to goes over some of the details but fails to highlight the central point of differentiation. At it's core, the question "what is money" is answered differently by Keynes than it is by Friedman. Friedman refines the concept of money to include credit availability. This language has generally evolved into what we now call M1, M2, M3, etc, which are different views of the money supply.

Another key difference is the degree to which a market can be considered fully rational. Keynes was correctly generally more skeptical of a perfectly rational marketplace than Friedman was. But that is a fairly marginal effect as the market at least somewhat rational in particular if not fully rational in general. Part of the problem here relates to utility theory and that what is "rational" for one may be "irrational" for another, thus assuming uniform congruent rationality is, erm, irrational.

This "rationality" assumption also plays out in the assumptions both make about how fast markets adjust to new information. A rational market would reach equilibrium quickly. Anyone who's been watching the housing bubble and bust over the last 10 years understands that this doesn't happen.

 
At 12:10 PM, September 29, 2011, Blogger Ryan Wills said...

It really wasn't my intention to have a debate regarding the efficacy of Keynesianism or Monetarism or broader neo-classical schools of economic thought, but rather my intention was to point out that, although there is much overlap, there are also critical differences - even qualitative ones - between these schools of thought (enough to distinguish them nominally at any rate). Whether such differences are over-played or under-played is an interesting point of contention, but not one that particularly runs counter to my claim/explanation.

In any case, I'm certainly not an economist, nor the son of the person in question - so I'll leave it to Dr. Friedman to address any further claims should he choose to do so.

 
At 1:51 PM, September 29, 2011, Blogger Neolibertarian said...

In any case, I'm certainly not an economist, nor the son of the person in question - so I'll leave it to Dr. Friedman to address any further claims should he choose to do so.

Given that Friedman isn't an economist either, I expect that his understanding of his father's work is more colloquial and anecdotal than academic. His general bent towards cherry picking nits, selective response, and penchant for idiosyncratic ideological polemics only supports that view.

 
At 3:21 PM, September 29, 2011, Blogger David Friedman said...

"That's not surprising. You're your father's son, not your father."

True. And as my father's son, I know what his comment was on that quote by Time. You don't.

"If you actually read Friedman's economic work though, you'll find the intellectual debt explicitly acknowledged"

True.

"As I said above, Friedman is distinct from Keynes in marginal degree, not kind."

False. It would be closer to describe him as a follower of Hume, who got the basics of the quantity theory right quite long time ago. Or Marshall. Or any of several other people.

"Given that Friedman isn't an economist either, I expect that his understanding of his father's work is more colloquial and anecdotal than academic."

Interesting claim--how do you define an economist? It's true that I have no degrees in economics. But I've taught economics, at the undergraduate and graduate level, at a number of respectable schools, including VPI, UCLA, Tulane, and Chicago. I've published articles in top journals and books that were generally well reviewed.

You don't post under your own name so I have no easy way of determining what your formal qualifications are for pontificating about economics, but your description here of what you think the differences are between the approaches of Keynes and Friedman does not suggest a very substantial knowledge of the field.

I was particularly struck by your thinking that one of the major differences was in the definition of money.

 
At 7:11 PM, September 29, 2011, Anonymous Anonymous said...

Warren Buffett explained his "Buffett Rule" in an interview with Charlie Rose. He says he included payroll taxes (Social Security, Medicare, ...) in the rates of his office workers. That's 15.3%. Nowhere in the interview did he discuss the effect of the corporate tax on investors' effective tax rates. Therefore, the "Buffett Rule" can be summarized as follows:

(1) Rich man's individual income tax rate >=
Average man's individual income tax rate + 15.3%.

(2) Corporate tax rate is not to be considered.

Buffett's argument is an aggressive one for two reasons:

(1) Social Security, Medicare, etc., are supposed to provide future benefits on an individual basis. (You have your own government accounts for these items.) Therefore, presumably, the present value of your future benefits would cancel out your payments in these areas.

(2) Rich man's income is frequently capital gains + dividends. There are abundant reasons why these items are taxed less at the personal level. The corporate tax (double taxation), taxation of fictitious inflationary gains, and restrictions on deducting capital losses are among the main reasons.

Interestingly, Buffett ascribes the 15.3% payroll tax to the employee, even though part of these payments are made by the corporation. But when it comes to the corporate tax, he does not ascribe that payment to the shareholder. In fact, the corporate tax is AWOL from the discussion. Hopefully, someone will eventually toss Buffett a hardball question on this issue.

I would say that if the "Buffett Rule" becomes law, places like Bermuda and the Bahamas are going to start looking awfully good.

 
At 8:24 PM, September 29, 2011, Blogger Neolibertarian said...

True. And as my father's son, I know what his comment was on that quote by Time. You don't.

This is truly impressive. As Brin noted, your inability to read past the first sentence is nothing less than extraordinary.

You are the only one talking about some random Time article that no one cares about.

Well played.

 
At 10:30 PM, September 29, 2011, Blogger Neolibertarian said...

how do you define an economist?

Someone who works professionally in the field of economics. You're free to argue that your work as a Law professor counts. But comparing your published law papers to just about any serious economic papers makes it pretty clear that armchair economist is exactly the correct appellation.

your description here of what you think the differences are between the approaches of Keynes and Friedman does not suggest a very substantial knowledge of the field.

Coming from an armchair economist, I can only take this as a compliment. That you describe Friedman as closer in kind to Hume than to Keynes again exposes how your slipshod ideological thinking. While Hume's political thoughts on private property might be parallel to Friedman's, his economic insight into inflation was a direct influence on Keynes revolutionary work. That you likewise list Marshall, Keynes tutor, again exposes your preference to think in terms of politics and not economics.

It comes as no surprise that your ideology trumps economics. That you might pretend otherwise isn't surprising either. Such is expected from those who place ideology ahead of reason.

 
At 8:39 AM, September 30, 2011, Blogger David Friedman said...

I asked:

"how do you define an economist?"

Neo-libertarian responds:

"Someone who works professionally in the field of economics."

He apparently assumes I have spent my life as a law professor, merely because I currently teach in a law school. My vita is on my web page, easily found by anyone curious.

I have been employed to teach economics, at various points in my career, by VPI, UCLA, Tulane, SCU, and the University of Chicago. At VPI and UCLA I was a professor in the economics department, at Tulane in the business school, at SCU I taught one course a year for the economics department while my main position was in the law school. At Chicago I was a faculty fellow in the law school, but taught several economics courses as a lecturer for the business school.

That would appear to fit neo-libertarian's criterion. I remain curious as to whether he fits it, a subject on which he remains silent.

"But comparing your published law papers to just about any serious economic papers"

Again, if he bothered to look at my vita, he would discover that most of my publications have been in economics. He is basing his argument on facts he has made up, instead of checking the actual facts.

Again I am curious. What journals has neo-libertarian published in?

"That you describe Friedman as closer in kind to Hume than to Keynes again exposes how your slipshod ideological thinking. While Hume's political thoughts on private property might be parallel to Friedman's, his economic insight into inflation was a direct influence on Keynes revolutionary work. "

My father's view of the matter, I think somewhere in print, was that it was clearer what we had learned about money and inflation in the previous twenty years than what we had learned in the previous two hundred--since Hume had gotten it essentially right. It had nothing to do with Hume's thought on private property.

 
At 9:21 AM, September 30, 2011, Blogger neil craig said...

I regret my previously good opinion of Dr Brin dropped sharply when I replied factually to his assertion in 2010 that "99% of atmospheric scientists support warming" and his response was personal rudeness followed by censorship.

http://a-place-to-stand.blogspot.com/2010/02/science-needs-reformation-so-that.html

Neolib may I suggest that it would be easier to take you seriously if you didn't choose a name opposite to what you clearly truly believe.

 
At 10:45 AM, September 30, 2011, Blogger Neolibertarian said...

Instead of going through point by point through your lack of response, I'll just sumarize.

VangelV: characterizes Keynesians as clueless
Neolibertarian: points out that Friedman followed Keynes
David: speculates on a Time interview
Neolibertarian: notes that Friedman refined some of Keyens work
Ryan Wills: notes that despite broad commonalities, differences are emphasized
Neolibertarian: generally agrees, discussing some specific differences
Ryan Wills: again notes that it's the differences that seem to count
David: randomly brings up Time quote again, and links MF to DH/AM before JMK
Neolibertarina: notes the links to DH/AM are primarily political, not economic, and that JMK is more closely linked to DH/AM economically
David: devotes quite a bit to ad hominem issues, plus DH comment

I'll end by replying to your the one bit of substance in the last post:

My father's view of the matter, I think somewhere in print, was that it was clearer what we had learned about money and inflation in the previous twenty years than what we had learned in the previous two hundred--since Hume had gotten it essentially right. It had nothing to do with Hume's thought on private property.

As I discussed above, Hume's work on inflation was a direct source of influence for Keynes' work. That you would again cite Hume as closer to Friedman than to Keynes clearly illustration that you're ability to look at these things objectively is hampred.

You are certainly free to respond substantively to the issues disccused above, or you can continue to try and puff up your weak economic resume.

It's up to you.

 
At 11:45 AM, September 30, 2011, Blogger David Friedman said...

"Instead of going through point by point through your lack of response"

You make claims, for instance that I'm not an economist. I point out that, by your own criterion, it isn't true. You ignore that.

I strongly hint that if you are claiming superior economic expertise and rejecting my views on the grounds that I'm not an economist, you ought to provide evidence that you meet your criterion of "economist" better than I do. You fail to do so. My conjecture, which you are welcome to refute if you can, is that you have neither "worked professionally in the field of economics" nor published articles in any serious economic journals.

So far, you have provided a range of assertions, some (about Keynes and Friedman) unsupported, some (about me) demonstrably false.

You are welcome to live a self-congratulatory life in your own fantasy, but I can't see wasting my time trying to follow you there.

 
At 12:21 PM, September 30, 2011, Blogger Neolibertarian said...

You are certainly free to respond substantively to the issues disccused above, or you can continue to try and puff up your weak economic resume.

It's up to you.


You make claims, for instance that I'm not an economist. I point out that, by your own criterion, it isn't true. You ignore that.

I see you've chosen to take the later tack and ignore the substance. As I noted several times above, I never expected you to get into a debate over substance. Ideologues seldom do.

You are welcome to live a self-congratulatory life in your own fantasy, but I can't see wasting my time trying to follow you there.

Your lack of reading comprehension is showing through. I've made no claims about my life. But by all means, continue to crow about your weak economic credentials.

The irony is strong with this one.

 
At 3:06 PM, September 30, 2011, Blogger burson said...

Neolibertarian - it seems odd..at least to me,that you are attacking someone on the grounds of insufficient credentials or being too ideological, when you dont even disclose you full name or academic work, what more you call yourself neolibertarian.could you at least, please, explain what that 'neo' means.just that.i really dont want to discuss substance with you.i'm only a grad student so i dont feel worthy.

 
At 7:10 PM, September 30, 2011, Blogger VangelV said...

So far, you have provided a range of assertions, some (about Keynes and Friedman) unsupported, some (about me) demonstrably false.

Why the surprise? After all most of Keynes' assertions were contradictory and unsupported by logic or facts. Why do you expect any better from his followers?

 
At 10:51 PM, September 30, 2011, Blogger Neolibertarian said...

could you at least, please, explain what that 'neo' means.just that.

For a basic coverage of my viewpoint, I might point you here:

http://www.qando.net/details.aspx?Entry=650

and here:

http://www.partialobserver.com/article.cfm?id=980

The short of it is that pragmatics, reason, science, and rigor trump doctrine, ideology and tribalism.

From a personal perspective, blind reductionism takes a back seat to ruthless optimization and efficiency, with the ultimate goal that people have as much social liberty as possible in a society that is necessarily hierarchical.

As for my credentials and identity, those matter little unless one depends on logical fallacies like the ad hominem, or appeals to authority. Personally, I prefer to eschew logical fallacies for reasoned discourse. I have mentioned my field of work previously here, so those who are truly interested can dig for it.

 
At 3:17 AM, October 01, 2011, Blogger neil craig said...

Neo's alleged commitment to "ruthless optimization and efficiency" over ideology is hardly consistent with holding up Keynes (burying bottles of money) as the ultimate guide to such efficiency.

Just as Brin likes using unjustified terms as a bolster to his claims (eg "99%v of scientists", "Institute of ethics" for censors) Neo uses the same dishonest tactic, clearly being no sort of libertarian.

Doesn't prove they are the same person - it is unfortunately a common tactic, though not normally used this extensively.

 
At 8:18 AM, October 01, 2011, Blogger Neolibertarian said...

Neo's alleged commitment to "ruthless optimization and efficiency" over ideology is hardly consistent with holding up Keynes ... as the ultimate guide to such efficiency.

Please do point me to where I've written any such thing about Keynes. And which term did I use which was "unjustified"?

Maybe you're talking abut someone else besides myself?

 
At 4:05 PM, October 03, 2011, Blogger Jon said...

I know this was mentioned already, but when someone says rates should return to the 90's levels they don't mean 1990 but instead mean the rates that corresponded with the Clinton tax hikes.

Scroll down just a tiny bit at this link to see a chart that breaks it out by the to 1% and top .01% and also goes back to 1960. This basically matches the CBO data David provided but is a bit more comprehensive. It looks like it has the 4 that are at David's CBO link (income, social, corporate, excise) as well as capital gains and estate taxes.

 
At 5:38 AM, October 04, 2011, Blogger VangelV said...

Scroll down just a tiny bit at this link

to see a chart that breaks it out by the to 1% and top .01% and also goes back to 1960. This basically matches the CBO data David provided but is a bit more comprehensive. It looks like it has the 4 that are at David's CBO link (income, social, corporate, excise) as well as capital gains and estate taxes.


But if you look at all the data you find that regardless of what happened to the marginal income tax rates the rich pay more taxes today than they did before both in absolute terms and as a percentage of the total. And the lower two quintiles pay a lot less than they did before. Going back to the Clinton years would require that the poor more. Is that what you are saying?

 
At 8:17 AM, October 04, 2011, Blogger Jon said...

It looks to me like the rich are paying a lower rate now than ever and that's also true of the poor. The top .01% are paying about 46% of their income in taxes in 1993 and by 2004 that has dropped to about 34%.

Going back to Clinton era levels does mean the poor pay more, but only marginally. The rich paid a lot more. Was that so bad?

 
At 9:45 AM, October 04, 2011, Blogger VangelV said...

It looks to me like the rich are paying a lower rate now than ever and that's also true of the poor. The top .01% are paying about 46% of their income in taxes in 1993 and by 2004 that has dropped to about 34%.

You are playing games. The rates do not indicate how much of the tax is actually paid by each population quintile or quartile. Try looking at where the tax revenue comes from and you will see that the rich pay more now than they did under Clinton and that the poor pay a lot less.

The real issue is not the tax rates but the tax system and how it determines where the tax revenue comes from.

Going back to Clinton era levels does mean the poor pay more, but only marginally. The rich paid a lot more. Was that so bad?

First, by looking at the tax rates and ignoring the loopholes and other issues you are ignoring the actual tax paid. Second, why not go back to the Clinton era spending? If you did, you would find that your country would not be running a huge deficit and that the problem is spending, not revenue.

 
At 9:49 AM, October 04, 2011, Blogger Jon said...

My source is not showing the tax rates, as in what is the top marginal rate, but is showing the actual amount of federal taxes paid.

 
At 12:38 PM, October 04, 2011, Blogger VangelV said...

My source is not showing the tax rates, as in what is the top marginal rate, but is showing the actual amount of federal taxes paid.

Sorry. I screwed up when writing and was not clear or accurate.

But there is a clear disconnect in your commentaries. Your source lumps everything into one pile but you talk about income taxes. That is not very honest.

For example, your FICA taxes are capped because benefits are capped. The poor pay more as a percentage because they are promised more after they retire. Lumping these along with income and capital gains taxes is very deceptive.

And as people on this site have written about many times people like you keep ignoring the double taxation issue. For example, when rich people are paid dividends that money has already been taxed at the corporate rate, which you and your source do not consider. Same is true with capital gains. It is a second tax on profits made by income that has already been taxed previously.

And you are not looking at the net flows. It is quite clear that the poor get a great deal from the government and that the benefits offset much of what they pay in taxes.

Keep in mind that in 2000 the top 60 percent of taxpayers paid all of all income tax while the bottom 40 percent paid no income tax. When the tax cuts were being discussed in 2001 the politicians were trying to figure out how to provide most of the tax saving benefits to a large group that was not paying anything in taxes. They decided to subsidize the group. By lowering the first tax bracket to 10% and expanding the refundable child tax credit, the legislators reduced the tax burden below zero. The number of tax filers without (or a negative income tax liability) went up by 10 million to around 30% of all filers. What this means is that over the next few years the share of personal income taxes paid by the lowest 40 percent went from )% to –4% percent. At the same time the share of income taxes paid by the top 20% of American households went up from around 82% to around 85%.

Clearly, there is not much to be said about the rich paying less in income taxes. As I wrote before, they pay less in capital gains taxes mostly because of the huge capital losses that are being carried forward. Given the fact that SS benefits are capped so are FICA taxes. So where exactly would you try to make changes that would lead to what you consider a favourable situation?

 
At 1:14 PM, October 04, 2011, Blogger Jon said...

Your source lumps everything into one pile but you talk about income taxes. That is not very honest.

I've always lumped everything in one pile. I'm talking about it in a consistent way.

And as people on this site have written about many times people like you keep ignoring the double taxation issue.

No we do not. My source apportions corporate taxes, mostly to the rich of course since they own most, and in addition apportions out capital gains taxes. Both taxation events are included in the calculations.

And you are not looking at the net flows. It is quite clear that the poor get a great deal from the government and that the benefits offset much of what they pay in taxes.

I'm not looking at it because it is not part of the discussion. The discussion is about government revenues not the way the revenues are apportioned.

while the bottom 40 percent paid no income tax. When the tax cuts were being discussed in 2001 the politicians were trying to figure out how to provide most of the tax saving benefits to a large group that was not paying anything in taxes.

See, now that's dishonest. You go from "the bottom 40 percent paid no income tax" to "a large group that was not paying anything in taxes". There's a difference between paying no INCOME tax and not paying ANYTHING in taxes. State taxes are regressive. The poor pay the highest as a % of their income. Everybody pays payroll taxes. Stop saying the poor pay nothing. The poor pay plenty. At my website I have a chart that includes all of it with state and local taxes. Nobody is paying nothing. As a whole the top 5% pays the highest, but if you break that out you find that the top 1% pays a little bit less than the top 5% generally.

 
At 6:26 PM, October 04, 2011, Blogger VangelV said...

I've always lumped everything in one pile. I'm talking about it in a consistent way.

No you are not. There is nothing consistent about adding FICA taxes to income taxes because of the effect of the capping of benefits. And there is nothing consistent about ignoring the double taxation issue.

No we do not. My source apportions corporate taxes, mostly to the rich of course since they own most, and in addition apportions out capital gains taxes. Both taxation events are included in the calculations.

I see no evidence of an actual in-depth analysis by your source, which is just a web page with two charts that do not seem very consistent. (I suggest that you might try to read David's comment.)

I'm not looking at it because it is not part of the discussion. The discussion is about government revenues not the way the revenues are apportioned.

When you have the government give money to the bottom quintile it is a part of the discussion. The money flows from taxes paid by those you think are rich to the poor, who pay nothing in income taxes. I do not see how that is not relevant.

 
At 6:26 PM, October 04, 2011, Blogger VangelV said...

See, now that's dishonest. You go from "the bottom 40 percent paid no income tax" to "a large group that was not paying anything in taxes". There's a difference between paying no INCOME tax and not paying ANYTHING in taxes.

What is dishonest is claiming that the rich are somehow paying less when the actual data is showing that is not true. What is dishonest is lumping in FICA taxes, which are supposedly supposed to pay for benefits without accounting for the fact that those benefits are capped. The rich pay less FICA taxes as a percentage of their income because their benefits are cut off at a certain income. By lumping all taxes together and ignoring the future payouts you are being dishonest.

State taxes are regressive. The poor pay the highest as a % of their income.

Are they? I thought that many states did not have income taxes in the US. Aren't people leaving high tax jurisdictions for low tax ones? What does that tell you about the desire of taxpayers?

Everybody pays payroll taxes.

Yes and everyone's contributions are supposed to pay for benefits. The rich get less in benefits because they pay more in tax on them. Because their benefits are capped at a certain level their contributions are capped to a maximum that the poor never reach. Of course, when SS defaults the rich individuals who contributed the maximum will lose a great deal more than the poor, who contributed a lot less.

Stop saying the poor pay nothing.

They pay no income tax, which is what you want to increase for the rich.

The poor pay plenty.

Of course they do. Tax codes are written by lobbyists and always be written by the lobbyists. If you really want the poor to pay less you should be arguing for no income tax, no capital gains taxes, and no payroll taxes. Get rid of all of those capital destroying government programs and let people keep the income that they earn. Taxation is theft.

At my website I have a chart that includes all of it with state and local taxes.

States are sovereign and can create their own tax policies. Central planning will not do any better.

Nobody is paying nothing.

Correct. While the bottom 40% pay nothing in federal income tax and may receive money from the government they certainly pay sales taxes, fuel taxes, property taxes, license fees, duties, tariffs, etc. To help them you should argue that those taxes be cut and that the spending that they support be cut to the bone.

As a whole the top 5% pays the highest, but if you break that out you find that the top 1% pays a little bit less than the top 5% generally.

The point is that the top earners pay by far the most in taxes. Clearly they are not the problem, no matter what the Obama Administration says. So it looks as if a solution will have to come from elsewhere. I suggest that the real problem is spending.

 

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