Sunday, April 26, 2009

A case of misplaced indignation

Bob Frank is all over the place in this Sunday's Economic View. I actually thought he was going to be writing a column about open borders given his first sentence: "The link between success and luck is stronger than many people think".

And then there was this bit:

"Another important message of recent research is that a person’s salary depends far more on where she is born than on her talent and effort.

For example, as a Peace Corps volunteer in Nepal long ago, I hired a cook who had no formal education but was spectacularly intelligent and resourceful. Beyond preparing excellent meals, he could butcher a goat, thatch a roof, plaster walls, resole shoes and fix broken alarm clocks. He was also an able tinsmith and a skilled carpenter. Yet his total lifetime earnings were less than even a very lazy, untalented American might earn in a single year."

I really thought he was gonna go all Lant Pritchett on us by drawing the obvious implication of his observations and calling for increased immigration, but no, he just wants to tell people they have no business opposing tax increases.

Oh my, that's very different.

Here is probably my favorite sentence of the piece:

"The current system is much fairer than many people believe, and the president’s proposal will make it both fairer and more efficient."


Isn't there supposed to be a tradeoff between equity and efficiency? What is the magic sword that BHO wields to cut this Gordian knot?

(and on a snarkier note, if "the current system is much fairer than many people believe", why does it need to be made "fairer"?)

Here is Frank's argument for how we get a free lunch by raising taxes.

First, higher marginal tax rates are pretty much irrelevant to labor supply: "There has never been a shortage of talented people willing to work hard for success — even in countries with top rates much higher than 50 percent."

No evidence given here, and maybe it's just me but I thought he'd been arguing vociferously that it was luck, not talent and hard work that brought success

Second, more Federal tax revenues will automatically increase the efficiency of public service provison:

"It would, however, promote more efficient provision of public services, in much the same way that contingent fee contracts often promote more efficient provision of services in the private sector. For example, when lawyers are willing to waive fees unless their client wins, wrongfully injured accident victims often gain legal representation they couldn’t otherwise afford. Similarly, when government levies higher tax rates on the wealthy, we can provide public services that the wealthy and others greatly value but that would otherwise be beyond reach. Under such a tax system, the heavier tax bill becomes payable only if we’re lucky enough to end up among life’s biggest winners."

People, that has to be one of the 5 worst analogies I've read this year. I've read it 4 times and am still scratching my head. The best I can come up with is this:

The government is my lawyer and my career is a wrongful injury suit against the universe.


Of course, even if the analogy made sense, it still would have NOTHING TO DO WITH THE EFFICIENCY OF THE PROVISION OF PUBLIC SERVICES!!!



br said...

Econ prof at Cornell. Totally irresponsible column. Should we revisit the tenure thread?

Anonymous said...

In 50 years, America is going to really suck...

Tom said...

If I want what you have, I need to persuade others (and myself) that you did not really earn it.

Even Karl Marx allowed for "...from each according to his ability..." Wait, what? There's something called ability?! What is that? ...and how come people of (economic) ability seem to cluster in low tax, low regulation areas?

Hannah said...

As for the evidence of people working (relatively?) hard even if they do pay high taxes: Germany has a current tax rate of 45% for the very high-income earners, average is about 34% I think, and that's just income tax. In the 1970s it used to be at a high of 56% tax rate (cf. German Wikipedia: – As far as I am concerned, I'm overall fine with it.

Just adding a bit of useless information – not that I particularly get what Mr Frank really wants in his piece.

Anonymous said...

Tom - the answer is greed to your question.

hannah is correct. I really think people who are CEO's etc do it mainly for the power, ego, control etc and not the millions and millions. So a small increase in tax will not make them think, umm lets be a cleaner instead.