
Defending the One Percent - scribu
http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.27.3.21
======
macspoofing
Isn't the entire 'one percent' debate (in America) centered around the fact
that one party wants to institute a modest tax increase on that group, and the
other party wants to, irrationally, keep cutting their taxes even when faced
with deficits? Nobody reasonable is actually advocating for 'perfect economic
equality'.

I'm generally a free market guy (in that I believe the free market should be
the foundation of the economy but not dictate every aspect of it), but I just
can't see a reasonable tax increase as being a problem.

I don't see a problem with a reasonable minimum wage either ($12-$15/hr),
especially when tax dollars are subsidizing the working-poor with food stamps,
students loans, public housing, health-care etc. As much as I'm disappointed
with Wal-Mart for not being embarrassed their employees are on food stamps, I
understand that they can't raise their wage unilaterally lest it puts them at
a competitive disadvantage - which is why you need legislation! Make it fair
for everybody.

~~~
hga
_and the other party wants to, irrationally, keep cutting their taxes even
when faced with deficits_

One thing we've learned is that never, ever happens. Instead, increased
revenues, such as provided by Reagan's tax _rate_ cuts, allows higher leverage
AKA deficits. So "starving the beast" seems to be the best approach, until, of
course, the accumulated deficits are inevitably reneged on one way or another
(e.g. inflation "works").

~~~
bargl
It's important to note that they (republicans) tend to want to cut taxes but
not services, because they can't compromise and cut both the military and
medicare/Medicaid/welfare/etc. They just want to cut the latter.

The lack of compromise leads to neither happening so many republicans really
don't want smaller govt. Some do, don't get me wrong. But many don't.

~~~
hga
Actually, Republicans can be quite willing to cut the military, remember
Dwight "military-industrial complex" Eisenhower, under who it was cut after
the Korean War wound down, and you could make a case that the current
sequester is cutting the budget. It's very very hard to analyze, because you
have to factor in wars, especially ones we did not exactly choose to fight
(e.g. Korean), and weapons procurement. E.g. however bogus the F-35 is, or the
premature cut of manufacturing the F-22 was, one way or another we'd be
spending a lot of money right now replacing the tactical airplanes we started
building in the '70s (especially since the F-15A through D models were
improperly manufactured:
[https://en.wikipedia.org/wiki/McDonnell_Douglas_F-15_Eagle#S...](https://en.wikipedia.org/wiki/McDonnell_Douglas_F-15_Eagle#Structural_defects))

And I see no signs the establishment GOP is truly interested in cutting
"medicare/Medicaid/welfare", however much they might talk about cutting the
latter two. Heck, they can't even bring themselves to terminate with extreme
prejudice the National Endowment for the Arts.

~~~
CaptainZapp
I'd argue that this was a very, very different brand of republicans you had
then compared to the current breed, which seems to lack any rationality,
whatsoever.

~~~
jomtung
Eisenhower was a republican before the conservative military hawks entered the
republican demographic (resulting after Nixon's Southern
Strategy[[https://en.wikipedia.org/wiki/Southern_strategy]](https://en.wikipedia.org/wiki/Southern_strategy\]))
so they were the progressive and liberal republican party. More closely linked
to a libertarian ideology of the time and would be likened by most modern
liberal democrats.

~~~
hga
It's not that simple. E.g. how would you score Teddy Roosevelt, who was both a
progressive _and_ a "conservative military hawk". Vs. William Howard Taft, who
per Wikipedia had a "domestic agenda [that] emphasized trust-busting, civil
service reform, strengthening the Interstate Commerce Commission, improving
the performance of the postal service, and passage of the Sixteenth Amendment"
(income tax) but had a less bellicose foreign policy?

I actually don't know much about that period of US history, but certainly
Goldwater counts for both a "conservative" military hawk and a libertarian.
And domestically Nixon was quite liberal.

Basically, there's been "liberal" and "conservative" strands in Republican
party history for more than a century, continuing to this day. Things don't
map out in simple ways, e.g. the first post-Snowden House vote on those issues
didn't split along _any_ recognizable patterns I could discern, party, region
of the country, etc.

------
e12e
The absurd example in the second paragraph put me off, so I didn't really find
it in me to read the argument thoroughly. But if the premise is that a single
man can "come up with an idea" and magically produce an _ipod_ with comparable
personal effort, and no reliance of a third world factory economy -- as an
author can come up with a book -- then I don't think the author of the article
has the required connection to reality to discuss economics at all.

Earlier today I came across this, which may (or may not) be an interesting
counter-point -- or at least make a meta-point: "Exposing the false prophets
of social transformation": [https://opendemocracy.net/transformation/nicole-
aschoff/expo...](https://opendemocracy.net/transformation/nicole-
aschoff/exposing-false-prophets-of-social-transformation)

~~~
hga
Did the iPod _require_ a "third world factory economy", or was that merely the
best way to make it when it was developed?

Go back to the original Apple II and subsequent products, they were per memory
and Wikipedia all made in the US until the late 1990s. The IBM PC was
originally manufactured by SCI Systems in Huntsville, Alabama.

~~~
eitally
Woohoo -- thanks for calling out my previous employer, which also built Macs
for a good while (in Colorado).

What a lot of folks don't seem to understand about "third world factory
economies" is that the prototyping and initial product runs are still
frequently done in the west. Some EMS companies, like Flex, even have hardware
incubators in Silicon Valley (google "Lab IX" sometime); all of them offer JDM
& ODM services, too.

------
paulsecwhatt
A large number (majority?) of people who are proponents for american-style
capitalism, advocating for less government intervention, are from big
universities around the U.S, and will often earn a relatively high wage.
Although it's very hard to quantify, I feel as though these people are very
disassociated from the everyday life the claim to be studying. If you live
near Harvard earning ~300k a year, how easy is it to imagine (pretend?) that
everything is fine and that the skewed income distribution is actually a
positive thing. Boiled down - can people who are part of such a skewed system
really produce unbiased studies and theories about the system?

They back up their claims with various arguments as to the nature of the
average consumer and echoes and remnants of trickle-down economics theories.

Why don't people instead look at the actual world for more accurate evidence?
The U.S. is a pioneer of creating highly divided cultures, with the top 1%
earning ridiculous amounts of money and living in relative luxury, while
having a very large population of people struggling to make ends meet, or even
get healthcare due to the associated costs.

At the same time, countries exercising a highly socialistic economic policy
(welfare countries), such as the Nordics and Germany to some extent have a far
higher "average" quality of life, as well as (arguably) a happier population.
Being a taxi driver in Norway or Denmark doesn't mean you live in near-poverty
and have to work 80 hours a week to make ends meet.

While I'll try to not get into details of economic theory, and so forth, one
question that has always irked me is the following:

Does the evidence not speak for itself? In what country has pure capitalism
(or at least as close as we can get), actually worked to produce a happy and
harmonious society?

~~~
kabouseng
Wow lots of strawmen here.

"A large number (majority?) of people who are proponents for american-style
capitalism, advocating for less government intervention, are from big
universities around the U.S"

Source? So what?

"Boiled down - can people who are part of such a skewed system really produce
unbiased studies and theories about the system?"

Can people who are part of the lower earning rung of society give a unbiased
opinion of the system?

"Does the evidence not speak for itself? In what country has pure capitalism
(or at least as close as we can get), actually worked to produce a happy and
harmonious society?"

Yes the evidence does speak for itself. Capitalism worked out pretty great for
much of Western Civilization. Everywhere where more socialist approaches were
tried it failed. Just ask all soviet countries', Japan, East Germany, China
etc. citizens if they are happy.

America is not for nothing the land of opportunity, and it is not for nothing
that emigrants are flocking to the USA, Europe and Australia.

Unfortunately the soviets discovered you cannot have a classless society. It
is that drive to elevate yourself to a higher class that makes us want to
achieve more than the absolute minimum required effort.

~~~
johanneskanybal
Creative quoting on your part but let's not pretend he was talking about
communism. It stated pretty clearly [countries with] "highly socialistic
economic policy (welfare countries)". All the mentioned countries are
successfull capitalistic countries with better safeguards and policies.

~~~
kaybe
Well, in Germany we call the system we're using 'social market economy' and it
does not aspire to be pure capitalism.

------
JamesBarney
This article seems to argue "Taxing the rich leads to reduced growth and
therefore all of society is worse off for it." That every extra $1 the rich
makes leads to a economy wide increase in $1.10. If this were true we would
want to reduce taxation levels of the rich considerably. And we would expect
inequality to be associated with very strong growth.

Luckily we don't have to just speculate. The IMF has done in-depth research on
this topic. And they found found that not only is growth not associated with
inequality, but there is evidence inequality actually leads to lower growth
rates.[0]

[0][https://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf](https://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf)

~~~
ConfuciusSay
You know when even the IMF is recommending we tax the rich more, there's
probably something to the idea...

------
PythonicAlpha
The trouble is not that inequality exists -- I think, that some form is
necessary in our world -- but that the inequality is increasing in a rapid
rate and that in the current state of our society, not achievements where the
society benefits are rewarded by the system, but rather achievements where
society looses (e.g. speculations, pure possession of wealth, investing --
whatever frivolous it might be, omitting taxes by using legal holes and off-
shore trickery, ....)

Even Buffett spoke out, that his class wins, but it should not (for the good
of society). And he said, that something is wrong, when his secretary has to
pay a much higher tax-rate as himself.

~~~
wtbob
> Even Buffett spoke out, that his class wins, but it should not (for the good
> of society). And he said, that something is wrong, when his secretary has to
> pay a much higher tax-rate as himself.

Did you read the article? Mankiw noted that when CBO statistics are used,
taking into account _all_ taxation, not just income taxes, the United States
have a very progressive tax system.

~~~
jazzyk
On paper.

In reality, there are many loopholes (the more money involved, the more fully
legal loopholes)

~~~
wtbob
No, the CBO study looked at the actual dollars coming from people; as Prof.
Mankiw notes, while there might be invididual exceptions the overall figures
are as stated.

~~~
PythonicAlpha
So, your claim is, that Buffett does not know how much taxes he pays? If this
would be true, I would wonder, how he got all his money in the first place.

>the United States have a very progressive tax system

Compared to which system? The system of Sweden or of Uruguay? You of course
can find dozens of third world countries, with dysfunctional tax system.

I guess, they are similar studies as can be bought (in dozens) in the country,
I live in.

~~~
wtbob
> So, your claim is, that Buffett does not know how much taxes he pays?

No, Prof. Mankiw's claim is that Mr. Buffett did not include all taxes in that
statement.

> > the United States have a very progressive tax system

> Compared to which system?

In absolute terms, according to the CBO's figures. The CBO is the
Congressional Budget Office, and is widely reputed to be honest.

~~~
PythonicAlpha
"In absolute terms" \-- you currently know, that there are more underdeveloped
countries in the world than so called "first world" countries? And when you
also count in countries like Russia than you get a feeling, what is compared
to.

Once, the US prided itself to be the most developed nation, today it must
compare itself with Uganda and other countries.

Compare tax rates of today with those after the 2nd WW -- the era, where the
US flourished most. Today, only the banks of the US are flourishing. When you
are no banker and earn below 7 figures a year, you should start to think.

The sentence about "honesty" I will not comment!

------
CPLX
Be advised that the most relevant credential for this author is that he was
the top economic advisor to the administration of George W. Bush. Defending
the 1% is literally what he does for a living.

------
klahnakoski2
I could not finish reading this. The paper started with examples of
entrepreneurial success that depend heavily upon government regulation; namely
the artificial scarcity generated from copyright and patents.

Also the statement "These high earners have made significant economic
contributions...", which is an axiom I am not willing to accept without some
convincing argument.

I found it impossible to read a paper that started dense with immature
postulations and grandiose assumptions. The author should have been aware of
the political climate of such a paper and attempted some care of his argument:
At the very least admit to the reader that he's making ridiculous assumptions,
but the argument will reveal itself with more reading.

------
jgoewert
Oh.. I thought he was going to go on an argument that we need to implement
basic income as a method for improving efficiency when his second paragraph
included an author who put herself into the one percent by being creative and
making a product while being unemployed and on socialist welfare and that by
removing a lot of what is effectively the "chaff" of the capitalist workforce
the workforce that wants to be part of the workforce improves overall.

I guess since he also included an businessman known for his abhorrent disdain
for socialism that he flippantly crams his vehicles into spots designated for
people with disabilities, I should have realized the final outcome would be an
argument that extreme wealth creates utilitarianism and is more efficient then
trying to broaden wealth.

Reminds me of the decay of the Roman empire in the 400's and how the rich
started abstaining from the government and society that tried to represent and
assist everyone to create micro-communities in their villas and start up the
process of feudalism. What shall we call our new era of a society that is now
90% capital deprived and rising? Feudalism 2.0? Feudl.ism? Feu.dl?

------
Sone7
This guy's a professor of economics at Harvard?! ...Actually that explains a
lot.

~~~
murbard2
Yeah, I was thinking that too... it is really well written, it makes
compelling and nuanced arguments and it sets a nice thought framework for the
debate. This is really an excellent piece, no wonder he's an econ professor at
one of the most prestigious university in the world, that guy is brilliant.

~~~
dbingham
Either you way over did the sarcasm or you and I are reading totally different
articles. This thing is full of undefended assertions and logical holes. The
thought experiment it opened with is so simplistic that it does little beyond
revealing the author's bias and assumptions. Assumptions that are absurdly
disconnected from reality (such as all voluntary transactions make both
people's lives better).

~~~
murbard2
I genuinely think it's a great piece, no sarcasm intended (though I obviously
playfully ignored the fact that the OP was implying the opposite)

Experiments in general are meant to be simplistic. The goal is to remove as
many confounding factors as possible to isolate a single phenomenon and study
it.

From there, he builds up to a more realistic model by incorporating more and
more factors.

------
arithma
Inequality of opportunity is a much bigger problem than inequality of, say,
income. An ideal community is a place where every individual's contributions
are enabled to the maximum. Capitalistic economies start out that way for a
while, and then lock in opportunities to the people who need them the least.
Guarantee education, and basic livelihood and the community reaps the
benefits.

------
crdoconnor
A few years ago some of his own students staged a walkout of his lectures
because of his innate desire to laud the American oligarchs:

[http://www.thecrimson.com/article/2011/11/2/mankiw-
walkout-e...](http://www.thecrimson.com/article/2011/11/2/mankiw-walkout-
economics-10/)

------
cbaleanu
Please mark as pdf.

~~~
patcheudor
No kidding. I never really pay attention to links on HN because I tend to
trust the community. I clicked on this one and a PDF started downloading to my
horror. I immediately nuked it from my download folder.

[http://www.cvedetails.com/vulnerability-
list/vendor_id-53/pr...](http://www.cvedetails.com/vulnerability-
list/vendor_id-53/product_id-497/Adobe-Acrobat-Reader.html)

