Arguing About Nothing

Andrew Sullivan proclaims the following from Greg Mankiw to be the quote of the day:

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

I clicked the link and read the whole Mankiw post to see if there was some specific controversy over public policy to which this parable was supposed to speak, but there isn't.

This, to my mind, is this most annoying tick of right-of-center economic punditry -- the tendency to produce arguments in favor of some form of liberal democratic capitalism and then brandish them as argments in favor of the specific policy proposals favored by those who want to take the most laissez faire of liberal democracies and take it even further in an extreme direction. Maybe I'm wrong, but I don't think liberals do the reverse. I don't think that if I constructed a witty anecdote proving that the government needs to have more than zero revenue that, say, Kevin Drum would hail this as a brilliant aperçu rather than something oddly banal to be blogging about. Naturally, one can, in principle, go too far in terms of soaking the rich (a specific example of doing so I would cite is the policy environment in Sweden) but what does this have to do with anything? Would a return to the level of taxation prevailing in 1999 or even 1994 really lead to dramatic economic collapse with Bill Gates fleeing to Andorra to take refuge?

Comments

Well, they'll have to hand in their passport on their way out as the US taxes worldwide income of its citizens no matter where they happen to be drinking.

Posted by Atrios | April 3, 2007 9:48 AM

Do you have any more evidence that high taxes are hurting Sweden than Mankiw does that Bill Gates would flee to Andorra? Sweden does just fine.

Posted by otto | April 3, 2007 9:49 AM

How exactly has the policy environment of Sweden "gone too far?" I don't see Sweden on the verge of economic collapse, not do I hear about massive discontent among the populace.

(Also, style-wise, the patronizing use of "boys and girls" is really, really obnoxious and cliched. It's almost as annoying as Friedman's famous use of "we're not in Kansas anymore.")

Posted by James Gary | April 3, 2007 9:51 AM

It's almost as annoying as Friedman's famous use of "we're not in Kansas anymore."

What an odd thing for Friedman to say. With Kansas being so notoriously flat, I would think he saw the whole world as Kansas now.

Posted by Njorl | April 3, 2007 10:00 AM

Mankiw's little parable is just pathetic. As if my 'beer' is any way equilvalent to Bill Gates' 'beer'. And I just love the faux sense of community implied by the 10 guys just hangin' at the bar. It is a true piece of work.

Posted by Nat | April 3, 2007 10:02 AM

Comments about leaving the country invariably remind me of the depth of the patriotism of the captains of industry. The right always assumes that some bottom line business decision will always trump any feelings about remaining an American company..or even citizen. The willingness of these companies to provide for the common good of the country, even in bad tax times, is often nil.

Yet the left, who stay and fight for their country and what it stands for during tough (read Bush) times are the traitors.

Well, Coca-Cola is still here.

Posted by Mudge | April 3, 2007 10:03 AM

Sweden... God, what a hellhole! I would hate to have to live there- the streets covered with... Well, nothing, their streets are remarkably clean (and I was in a small town, so perhaps I didn't notice the throngs of homeless people wandering through the March cold). Ummm- their weak industrial base, I mean- who would want to buy a *Volvo*? Oh... Ummm- so what's so bad about Sweden again? The 4.5% GDP growth last year? The 1.3% to 1.6% inflation? Health care and education for all? Unemployment around 5% compared to 4.5% for the US. Why is it the Sweden is always pointed to as an example of how not to run an economy?

Posted by Eric | April 3, 2007 10:05 AM

I think I see the problem: Swedes actually pay less of their income to taxes than Americans and get more services.

Damn gloomy northerners.

Posted by Jeffrey Davis | April 3, 2007 10:19 AM

"Naturally, one can, in principle, go too far in terms of soaking the rich (a specific example of doing so I would cite is the policy environment in Sweden)"

Hell, yeah. Having the 9th highest per capita GDP on the planet should be showing everyone the unspeakable horrors of the Swedish system. Soaking the rich has delivered them a hell of low unemployment, low inflation, and high growth, along with the most even distribution of wealth on the planet.

As the Wikipedia article on Sweden notes about their economy:

According to the book, The Flight of the Creative Class, by the U.S. economist, Professor Richard Florida of George Mason University, Sweden is ranked as having the best creativity in Europe for business and is predicted to become a talent magnet for the world’s most purposeful workers. The book compiled an index to measure the kind of creativity most useful to business – talent, technology and tolerance – and found Sweden to be the number one spot in Europe and the world. ... Sweden's industry is overwhelmingly in private control; unlike some other industrialized Western countries, such as Austria and Italy, publicly owned enterprises were always of minor importance. Eighty percent of the workforce is organized through the trade-unions which have the right to elect two representatives to the board in all Swedish companies with more than 25 employees.

And as to what those economy crushing tax levels provide:

While similar in form to other governments in Western Europe, the Swedish state is among the most generous in the scope of government services provided. These include tax-funded childcare, parental leave, a ceiling on health care costs, tax-funded education (all levels up to, and including university), retirement pensions, tax-funded dental care up to 20 years of age and sick leave (partly paid by the employer). Parents are entitled to a total of 480 days partly paid leave between birth and the child's eighth birthday, with 60 days reserved specifically for each parent, in effect providing the father with two so-called "daddy-months". The ceiling on health care costs makes it easier, relative to other nations, for Swedish workers to take time off for medical reasons.

The horror. The horror.

Posted by Petey | April 3, 2007 10:19 AM

To be unnecessarily fair: The "economist"-style argument about sweden is that personal income taxc is high, but that taxes on corporations are only middling and have never been high.
Don't now if its true.

Posted by IM | April 3, 2007 10:20 AM

Anyone else get the impression that Mankiw is one of those people who truly believes Atlas Shrugged is a prophetic warning for our times?

Posted by vanya | April 3, 2007 10:21 AM

Well, there's a certain homogeneity in the comments here! But that's what Matt gets for a silly throw-away line.

Posted by otto | April 3, 2007 10:22 AM

So a parable isn't an argument. But hey, whatever it takes to "fight back against the class warriors." Never was there a time so perilous for our nation's rich, those marginalized few!

Posted by Mark | April 3, 2007 10:22 AM

Since we have been into dumping policy preferences into free trade agreements, how about including provisions about tax levels for the rich that counteract the tendency to race to the bottom (I would gladly take back these provisions if IP protections included were less onerous). Lichtenstein, repent, or be treated like Cuba!

On a related note, even on their own terms, something like the inheritance tax would seem to be a completely different animal than something like an income tax, no?

The other obvious point -- is Mankiw talking about the Bush tax cuts -- the ones that fixed the the unacceptable conditions for the wealthy of the Clinton years? That sure was intolerable.

Posted by theCoach | April 3, 2007 10:23 AM

Andrew “Bareback” Sullivan is a radical left-winger who tries to use neoconservatism as a Trojan horse to promote his radical views. He is obsessed with homosexuality, and has engaged in revisionist history and revisionist philosophy to promote his agenda.

Posted by Right-Winger | April 3, 2007 10:28 AM

Harvard economics is not in the business of honest teaching.

Is the US tax system progressive? This is a matter of looking at, for example, what percentage of income people pay in taxes as a function of their level of income.

Right wing liars like to distract by changing the question to what percentage of total taxes are paid as a function of the level of income. Of course, as income becomes more unevenly distributed, the rich can end up paying a greater fraction of total taxes, even while their tax rate goes down.

Posted by Robert | April 3, 2007 10:28 AM

Anyone know if there have been any serious studies relating executive compensation to productivity/competitiveness? My anecdotal experience would suggest that allowing/encouraging business executives to get as rich as they can basically only leads to the looting of the businesses they are supposed to run and is actually counterproductive. Most top executives realize they are hired guns who will take the blame at the next downturn, even if it's not their fault, and will naturally try to rape and pillage a company to the best of their ability. It seems to me that countries like Japan, Germany, and Sweden remain successful precisely because there are social and policy controls that restrain that sort of behavior. In the US bad behavior ("greed") is encouraged, and it is slowly turning us into Brazil.

Posted by vanya | April 3, 2007 10:29 AM

Actually, I think the parable is meant to criticise those who complain that tax cuts disproportionately benefit the rich, to show that even a flat rate cut will give disproportionate gains to the rich, as they paid more in the first place. By the same token, a flat tax increase would take more from the rich.

That said, I thought a lot of the complaining about the Bush tax cuts was that they reduced the progresivity of the system, and thus the complaints were different than the parable. I think the parable is a bit of a bait and switch

Posted by graeme | April 3, 2007 10:43 AM

Well, let's take a look at the raw numbers: Sweden average real GDP growth 1997-2006: 3,01%. USA real growth from 1997-2006: 2,76%.
(Numbers from OECD Economic Outlook Nr. 80)
Now perhaps I have made a error in adding up or dividing, but I think the numbers look quite good for the high tax statist hellhole.

Posted by IM | April 3, 2007 10:44 AM

vanya, we don't need any such studies, although they would be interesting; we can already predict the outcome.

if, indeed, there was a relationship between ceo comp and corporate performance, than the companies with the highest-paid ceos would perform the best.

they do not.

as for mankiw et al, it's just amazing to me that they want to pretend that the '93 tax hike was not followed by 8 years of excellent economic performance during which many people got wealthy. i still vividly remember the wsj's editorial prediction of how dangerous to growth the '93 tax hike was....

Posted by howard | April 3, 2007 10:47 AM

I don't believe in soaking the rich just for spite, and I imagine that, contrary to Mankiw, few liberals do. But as long as there's a deficit that threatens our long-term economic health (though I realize that this too is debatable), the people who can best afford to pay should pay for the commitments, domestic and foreign, that we as a democracy have made.

Posted by kth | April 3, 2007 10:55 AM

I actually do every now and again encounter arguments roughly of the from: But the government builds ROADS! And roads are AWESOME! Therefore the government is AWESOME! As you note, however, such people are (mercifully) not showered with praise by Kevin Drum. They do occasionally sneak on to HuffPo, though.

Posted by Julian Sanchez | April 3, 2007 10:57 AM

Sweden again... MY has it sort of right, with the exception that filthy rich Swedes are allowed to roam free without undue tax burden (as long as they keep the money in corporations). There are all sorts of tax breaks and tax exceptions for the superrich in Sweden. It's the professional class that get stiffed in Sweden, except not really because they actually receive valued services for their tax kronas. If we only could make the calculation of purchasing power parity to include health care, child care and education (nominal fee, nominal fee, and free in Sweden), maybe Sweden will look better in GDP per capita comparisons too.

Posted by Dan Karreman | April 3, 2007 11:03 AM

Despite his occasional flirtations with rational thought, Sullivan is a deeply unserious and intellectually dishonest pundit.

Posted by Jimmmm | April 3, 2007 11:59 AM

Well this blew up in fat boys face didnt it. His raft of dumb ass commentators immediately came flooding in to demonstrate exactly why right wingers feel compelled to offer what should be rudimentary economic insights to you socialist idiots.

Posted by pimp hand | April 3, 2007 12:11 PM

Reading the comments is pretty fun at Mankiw's site. You always get the guy who claims that because of the high tax rate at the highest incomes that he's going to purposefully stay at his lower paying job to avoid the higher tax rate. I have a feeling that something else is holding him back from the higher paying job.

Anyway, this is what strikes me as ridiculous about the argument that higher taxes for the rich hurts innovation and motivation. I suppose that is possible but when compared to the middle class and lower class, the effect on seeing your money go away to things you can't control like taxes or health care or whatever non-disposable income is much less damaging. So in terms of the best way to extract taxes from the people, it seems glaringly obvious that taking primarily from the rich is the most efficient way because they see their hard work resulting in disposable income even with high taxes. We should be working to create the same, as much as possible, with the lower and middle class as well.

And this is without considering any issues of social justice which is a whole other argument for soaking the rich.

Posted by kj | April 3, 2007 12:36 PM

Matt, Dr. Mankiw utters these "banal platitudes" because there is a significant chunk of the population that just doesn't seem to believe them. Many of your commentators seem to demonstrate that fact.

I mean, it's much like if Dr. Mankiw said: "The sun rises in the east" and seeing a raft of commentators saying things like:
* "Well, it only appears to rise in the east, technically it's the earth that's moving."
* "What I fail to see is why we must assume that it will continue to rise in the east tomorrow?"
* "Ah, the idiotic 'Sun Rises In The East' idiocy. When will these idiots get a clue about their stupid fallacies?"
* "It's not important where the sun rises. What's important is that invisible gnomes are keeping the poor from getting richer."
* "You know what will cause the sun not to rise in the east? If a single person in the US is not covered by a generous, comprehensive Universal Health Care plan."
* "East, west, north? Who cares. Why are you shilling for the rethuglicans, Matthew?"
* "Feh. Mankiw is a professor at Harvard. Obviously they know nothing about the sun or where it rises."

Posted by jb | April 3, 2007 12:52 PM

jb,
Really bad analogy, but, technically isn't the first one true?

How about for an analogy - this is how the NBA referees work. If you start calling fouls on Michale Jordan just like your average player, he might just leave and play for the CBA.

Posted by theCoach | April 3, 2007 1:04 PM

jb and pimp hand, right wingers can flood in spouting whatever drivel they want, but that doesn't make it true.

that is, it isn't true that we are in any danger of overtaxing high-income households in america.

it isn't true that even if we did overtax high-income households in america, vast numbers of them would flee elsewhere (because we used to have much higher taxes on high-income households, and they didn't flee then).

it isn't true that higher taxes on high-income households harm american wealth creation, or else we wouldn't have had the '90s.

it isn't true that american taxes on high-income households are higher than taxes on high-income households in other advanced industrial (and post-industrial) societies.

it isn't true that tax cuts have to be designed to lower the effective tax rate on high-income households in order to benefit the american economy in aggregate.

in short, the reason we sneer at this crap is because it is crap.

Posted by howard | April 3, 2007 1:07 PM

jb's power of analogy is thrilling. He of all people should know that Mankiw's analogy is horribly incomplete and so for all the good it does to illustrate that the rich pay more dollar bills when taxes are raised and should expect to keep more dollar bills when taxes are cut, it does nothing at all to illustrate that potentially all 10 men in that bar worked a full day and the rich guy ended up with 1000 bills in his wallet while others ended up with 50 or 60 bills. Even after paying for the beer, the rich guy takes home way more money despite having worked roughly the same.

So to run with your brilliant analogy jb, if Mankiw says, the sun rises in the east but leaves out his theory that it sets in the south, should I continue to take this Harvard man seriously?

Posted by kj | April 3, 2007 1:10 PM

I second Julian's point that there are some liberals who think that an argument against anarcho-capitalism consistitutes an argument for whatever level of government intervention they happen to be avocating.

Any criticism of OSHA regulations or the drug approval process tends to be met with a chorus of liberal voices proclaiming that doing so would result in workplaces becoming deathtraps and quack doctors selling rat poison as medication. I also seen the argument that since taxes in general are morally permissible, whatever possible level and manner of taxation levied is a good idea (an instance of which is probably what spurred Mankiw to reiterate the obvious). Hell, I've even ran into a few who defend the US's very unprogressive agricultural protectionism on the grounds that they just can't bear to let the free market operate on food prices.

Posted by MattXIV | April 3, 2007 1:24 PM

"I also seen the argument that since taxes in general are morally permissible, whatever possible level and manner of taxation levied is a good idea..."

Dude...WTF?

Posted by James Gary | April 3, 2007 1:28 PM

james,

My reaction too. You see it periodically in liberal trolling of libertarian blogs. The structure of it normally consists of an argument that since property rights are created and enforced by the state, the state can take your property in any time and manner it deems appropriate, coupled with the idea that since conservatives often incorrectly cite Laffer curve rationales for tax cuts that the Laffer curve never applies, (normally in the form of a statement that the Laffer curve has "been debunked").

Posted by MattXIV | April 3, 2007 1:51 PM

And yet Dr. Mankiw still writes an excellent textbook. Beyond weird.

Posted by Kimmitt | April 3, 2007 2:37 PM

Yes, his textbook is quite good. Very clear, with lots of nice charts.

Posted by JP | April 3, 2007 5:20 PM

Mark Thoma linked to and discussed the Mankiw post last week. He concluded:

"As to Greg's the main point, questions about the equity of tax cuts, the other thing missing is what taxes pay for. Making the good in the story beer (i.e. something we could do without) and then allowing the same quantity to be purchased at a lower price is not a parable that relates to government spending. Unlike this made-up story with it's made-up resentments, taxes fund government services - something must be given up when taxes are cut, or taxes must be raised in the future as PGL notes. In the case where programs must be cut, if it's essential social programs, then I hope that people do raise questions of basic equity. Cutting estate taxes when we cannot afford pre-school programs for disadvantaged children would be a much better parable for Greg to tell. We could point fingers at the disadvantaged and call them whiners for asking if paying for estate tax-cuts by not fully funding programs such as these is fair - but I suspect we won't hear that story."

Posted by Emma Zahn | April 3, 2007 6:05 PM

Matt XIV wrote :
"I also seen the argument that since taxes in general are morally permissible..."

Try telling that to anarchists. Please minarchists, help us poor social democrats out here.

Posted by Headache | April 3, 2007 6:36 PM

Has anyone noticed that Prof. Mankiw did not write the parable? He just reprinted it. Of course, yes, that means he's quasi endorsing it, but a lot of commenters here talk as though he wrote it.

Posted by next big thing | April 3, 2007 8:49 PM

Response to "10 men in a bar" economics.

http://www.dailykos.com/story/2007/4/4/1380/54674

Posted by Mark Twain | April 4, 2007 4:43 PM