Some Surprising Facts about Income Growth and Inequality

From Brookings's Gary Burtless.  A few very nice graphs here, based on CBO data.

A Random Snapshot

I have been shooting a series of short videos to serve as chapter introductions for my favorite textbook.  These will be available to those using the electronic version of the book, a rapidly increasing share of the market.  Just for fun, here is a snapshot from yesterday's video shoot.

Word of the Day

Bulverism.

I had never heard this word, but a correspondent recently drew my attention to it.  Coined by C.S. Lewis, it is a type of argumentation where you assume your opponent is incorrect then quickly move to explain the causes of his folly. Of course, it is not valid as a matter of logic, but it is unfortunately all too common.

Here is C.S. Lewis:

In other words, you must show that a man is wrong before you start explaining why he is wrong. The modern method [Note: This essay was written in 1941.] is to assume without discussion that he is wrong and then distract his attention from this (the only real issue) by busily explaining how he became to be so silly. In the course of the last fifteen years I have found this vice so common that I have had to invent a name for it. I call it “Bulverism.” Some day I am going the write the biography of its imaginary inventor, Ezekiel Bulver, whose destiny was determined at the age of five when he heard his mother say to his father - who had been maintaining that two sides of a triangle were together greater than the third - “Oh, you say that because you are a man.” “At that moment,” E. Bulver assures us, “there flashed across my opening mind the great truth that refutation is no necessary part of argument. Assume your opponent is wrong, and then explain his error, and the world will be at your feet. Attempt to prove that he is wrong or (worse still) try to find out whether he is wrong or right, and the national dynamism of our age will thrust you to the wall.” That is how Bulver became one of the makers of the Twentieth Century.

The Growth of Pass-Through Entities

Over the past few decades, there has been an amazing shift in how businesses are taxed.  See the figure below, which is from CBO.  Businesses are more and more taxed as pass-through entities, where the income shows up on personal tax returns rather than on corporate returns.  (Here is an article discussing how the mutual giant Fidelity recently switched from one form to the other.)

This phenomenon complicates the interpretation of tax return data.  For example, when one looks at the growth of the 1 percent, or the 0.1 percent, in the Piketty-Saez data, that growth is likely exaggerated because some income is merely being shifted from corporate returns. I don't know how much.  If someone has already quantified the magnitude of this effect, please email me the answer. If not, someone should write that paper.

Click on graphic to enlarge.

Too Little Faith in People, Tax Policy Edition

Paul Krugman responds to my post about a recent column of his.  He is correct that not all economists agree that low capital taxation is desirable; he appropriately cites Diamond and Saez, who are on the high-capital-tax side of this debate. FYI, here is another recent paper, written in part as a response to Diamond and Saez, which finds that optimal rates of capital taxation, while positive, are quite low.

But that is not really the issue. If Paul had said "reasonable economists disagree, here are the arguments, and here is why I tend to favor one side rather than the other" I would not have objected.  Instead, in his original column, he wrote as if there were no reasonable arguments for the policy pursued by the Bush administration, and he attributed the most vile motives to those who advanced the policy.

This episode illustrates a fundamental difference between Paul and me.  I try not to assume the worst in other people, just because they disagree with me.

Markets in Everything

If there ever was a niche product, this is it.

Not Class Warfare, Optimal Taxation

Today's column by Paul Krugman is classic Paul: It takes a policy favored by the right, attributes the most vile motives to those who advance the policy, and ignores all the reasonable arguments in favor of it.

In this case, the issue is the reduction in capital taxes during the George W. Bush administration.  Paul says that the goal here was "defending the oligarchy's interests."

Really? As Paul well knows, there is a large literature in economics suggesting that an optimal tax system imposes much lower taxes on capital income than on wage income (or consumption).  I can personally attest that President Bush's economic advisers were well aware of this literature.

Note that when Barack Obama ran for President in 2008, he campaigned on only a small increase in the tax rate on dividends and capital gains.  He did not suggest raising the rate on this income to the rate on ordinary income.  Is this because Barack Obama also favors the oligarchy, or is it because his advisers also understood the case against high capital taxation?

The Economist as Philosopher

Click here to read my column in Sunday's NY Times.

Measuring Slack in the Phillips Curve

According to a new paper coauthored by Alan Krueger, the short-term unemployment rate works better than the standard unemployment rate in explaining changes in inflation, and according to this measure, the economy was about at its NAIRU in 2013.  This finding is related to issues I discussed in a recent Times column.  Here is a relevant graph from the Krueger paper.

How to Win a Billion Dollars

Quicken Loans will pay you a billion dollars if you fill out perfect bracket for the NCAA men's basketball tournament.  But given the odds, the expected value is still less than a penny.

You can enter here.

Economists on a Minimum Wage Increase

Hundreds are in favor, hundreds are opposed.

In choosing whether to major in econ, women respond more to grades than men

This chart shows the percentage of male and female students who received a given grade in introductory economics course who then later majored in economics.

Source.

ERP

The new Economic Report of the President is available here.

The Divide over Market Efficiency

Here is a great article about Eugene Fama, Robert Shiller, and the debate over the informational efficiency of financial markets.

Is the Obama administration right in pushing for a trade deal?

1. Paul Krugman says no.
2. The Economist says yes.