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Tuesday, May 11, 2004

My first Fisking - I'm so proud  

There's something about the intersection of politics and economics that makes even educated people unable to see the obvious.

Daniel Altman has an article in Slate pumping his coming book Neoconomy, an attempt to tar the Bush economic plan with the neo-con brush. Here are some of his comments:
All of these [tax] changes make it relatively more attractive to accumulate wealth than to spend money.
Exactly. It's called capital formation. It's a prerequisite for capitalism. It's a long-term approach to growth, because invested capital has slower velocity but a higher multiple than consumer spending.
In the short term, [the] focus on savings has offered relatively little stimulus to the economy. Had the White House directed more incentives toward spending, the lag between recession and recovery might have been shorter.
And the recovery might have been less broadly based, and less likely to continue beyond the next few quarters. I thought short-term-only economic thinking was supposed to be a bad thing.
In the coming years, the federal government will have little money to invest in economic growth directly, by spending money on education, worker training, or basic research, which generate reliably high returns to society in the long run.
All of which are done far more effectively by the public sector, right?
[T]here is no assurance that the positive chain-reaction the neoconomists envision will actually occur. Hubbard and Lindsey's strategy has never been tried in a large, wealthy economy.
True. Capital formation is merely a condition for the process by which economies actually become large and wealthy in the first place. No reason to think it won't become irrelevant past a certain point.
American savings do not always stay in America for use by American companies. In the past two decades, the share of savings sent abroad appears to have risen from about 10 percent to at least 40 percent.
It's called globalization. In most economic frameworks, more trade is a good thing. And notice how he's stopped referring to wealth: it's now savings. There's a reason for that. It's because he's going to change the time frame and start focusing on income, and Savings are defined as Income less Spending.
Wealthier people derive more of their income from returns on saving - both in dollar terms and as a proportion of income - than poor people do.
Wealth may be able to incrementally increase, but only over time. At any given point, the class structure is fixed and the only variable measure is income. Gradual accumulation doesn't fundamentally change anyone's lot in life in the short term, so we can ignore it.
When taxes on the return from savings suddenly disappear, the wealthy benefit the most.
Suddenly disappear, are gradually reduced over a number of years; whatever.
With rising inequality, it's harder for poor people to obtain economic opportunities, because chances to get education and training, or to bring ideas to market, depend on money as well as talent, and because the number of these opportunities is limited.
Wealth cannot be created, and the number of opportunities is fixed as well. The creative destruction of capitalism only reshuffles an existing deck. More doesn't really mean, you know, more. Except for the already-wealthy.
Eventually, the new incentives could lead to a whole new way of classifying people: working and upper-class would be replaced by taxpayer and free-rider.
As Altman well knows, the current tax structure where 50% of the population pays no income taxes already classifies people into working-class free-riders and upper-class taxpayers. But that might somehow completely invert.
Titans of industry, heirs and heiresses, and wizards of Wall Street wouldn't pay for national defense, cancer research, or President Bush's trip to Mars. All those costs would be borne by America's breadwinners.
Notice the government expenditures, selected from the 35% (and shrinking) of the budget that's discretionary. No entitlements are mentioned. And no government revenues are considered other than income or payroll taxes. And note the gratuitous personalized slur.

Of course, Altman's bioline calls him "a Harvard-educated economist and New York Times columnist." Very little chance he has a political agenda, right?

Update: Something about Slate that just elicits this treatment, I guess.

posted by Kelly | 7:54 PM link