As IF Times

link Laura Ingraham and Ben Stein Debate Raising Taxes on Rich – Interviews – The OReilly Factor – FoxNews.com.

When you absorb as much business news as I do, you are exposed to a wide spectrum of opinions on any given issue.  Of course these days, all business news has an element of political news and it’s a very rare pundit that doesn’t mix one completely with the other.  In the case of economists, for all of the sobriety that seems inherent in their profession, there is always at least the element of humor in their presentations, intended or otherwise.  When the chief economist for Brokerage firm A pronounces that growth will be 2.1% vs the earlier forecast of 2.3%, that’s big news and can frequently spark millions of dollars of securities trades just because of that 0.2% difference.  You’d think that these numbers were proclaimed by guys sporting robes and sandals reading from tablets; the stone kind, not the IPad kind.

In order to create some interest in the aptly named ‘dismal science’, some TV networks interview people who exude some kind of personality, as if that would make the pronouncements more believable.  Fox for example regularly brings on Ben Stein, he of the dry  persona made famous by his role in the 80’s movie, Ferrris Buehler’s Day Off.  Think of his deadpan delivery of, ‘Buehler, Buehler, Buehler’.   Apart from being a character actor, Stein is also in reality, an economist, one that is acclaimed enough to merit being interviewed on various talk shows.  I won’t quibble over the complex models that these guys use to come up with a result of 2.1% vs 2.3%, after all, somebody believes it.  What I do have issue with is the very basic premise of economics that all economists should have learned in their first year in school.

While there are really no laws in economics, unlike for instance the law of gravity in physics, certain tenets must pass the smell test of common sense.  In particular, unless they’ve changed the entire premise of economic theory, demand responds to supply and price is a function of scarcity.  In the interview on Fox, Stein is pushing some economic heresy that even a kid running a lemonade stand would laugh at.  His premise is that tax rates should be increased significantly on the ‘rich’ so as to contribute to the federal deficit, since, according to him, during the ’40’s , ’50’s and ’60’s, tax rates were higher and the US economy had no trouble growing.  Like Warren Buffet before him, Stein thinks that tax rates on the ‘rich’ should approach 90%.  The rich can afford it and the economy can still grow.

This is as logical as the idea that a restaurant can keep hiking prices because they’ll just keep on making more money.   What Stein does not mention in his astute analysis is that the period mentioned happened to be the largest economic expansion in the history of the world in the aftermath of World War 2.  There was demand for everything in the world since everything was destroyed and the US was in the unique position of being the only functional industrial economy.  Taxes may have been high, but the economy was expanding at a scale that had never been seen before.  The bulk of the workforce was young and contributing to growth.  We did not yet have the pull of entitlements on the economy anywhere near the degree that we do now.  Great fortunes were made and great corporations built.

If Stein’s premise is correct, why don’t we just pay everyone a flat income and and tax the rest away?  In addition, running a business will be easy, just set the prices as high as you want, since that must mean more income, not that you’d be able to keep it.   Maybe we’re all being conned here.  Maybe Stein is actually an actor posing as an economist.  That makes more sense.

link Stop Coddling the Super-Rich – NYTimes.com.

The Sage of Omaha has spoken.  Mr. Buffet openly bemoans that his fellow billionaires don’t pay enough taxes.  You can’t make this up.  Considering that this guy is the most revered investor on Wall Street and his every utterance probed for nuggets of investment wisdom, it’s unclear to me why he doesn’t rectify this sad of affairs thusly….pay more voluntarily!  Just write a cheque in the amount in excess of that required to maintain his lifestyle and it’s likely any national deficiencies will be significantly drawn down within 10 years.  

As far as I know, there is no law restricting personal generosity to the various government tax regimes.  When you are in church and the collection plate comes around, you are allowed to put in as much as you want.  There is no maximum donation restriction.  It’s unlikely that people will whisper and point at you disapprovingly for donating $10,000 when everyone else puts in a twenty.   Is Mr. Buffet afraid that any excess largesse he confers will be rejected?  Is he concerned that IRS agents will come to his house returning bags of money excessively donated?  Memo to Warren: they take money; blankets and old clothing they can do without.

It’s admirable that Buffet has enough guilt to want to pay more.  But it’s a bit like the childhood scenario wherein your mother is cold and therefore you have to put on a sweater.  While few can argue with Buffet’s investment savvy, some of his notions of modern life are a little suspect.  The guy owns Coca Cola, railroads and insurance companies, great cash machines but not exactly the leading edge of American technology and commerce.  Despite the fact that his best pal Bill Gates was at the vanguard of the most revolutionary change in American,  if not human technology back in the 80’s, Buffet didn’t invest because he didn’t ‘understand’ the business. 

While many of his billionaire pals legitimately got to where they are, through risk taking and shrewd planning, he is correct in stating that many others who got there by manipulation of various political levers to take full advantage of arcane rules and laws which they themselves helped create.  Those guys should pay more.  If a guy like Al Gore beats the global warming drum and then causes laws to be created which benefit his business empire, they should tax it all away.  But Warren is living in some delusional world if he thinks that people would rather have their income capped at some arbitrary amount just because he never has to worry about his next meal or mortgage payment.  Good on him, but plenty of people aspire to be like him and they won’t get there by having  a ceiling on their earning potential.  The very characteristics of the companies he invests in are all about making profits and maximizing income. It would be like Hugh Hefner preaching fidelity.  

Of course, if  he was really conscientious he’d pay for a private foundation to run around cajoling his buddies to pay up rather than heap the cost of a bureaucratic tax state on the public.   I suppose he’s correct in assuming that once your net worth gets north of a billion, scanning the Wal Mart flyers gets superfluous.  His pals should be pushed to pay more.   Just keep bureaucrats out of it.  He may even get a tax deduction.

If he wanted to have some fun, rather than just mailing in cheques heavy with zeroes, why not go around giving money away to less fortunate people?  He could leave $1000 tips to waitresses and bellhops.  He could just leave his cars to the valet parker rather than tipping.  In fact, rather than leaving room tips, just leave the hotel to the maids.  He could start a reality show in which he can convince all of his well heeled buddies to leave the largest tips.  It’ll be entitled ” Who’s the Biggest Tipper?”.

For a different view of this, http://blogs.telegraph.co.uk/news/peteroborne/100100708/the-moral-decay-of-our-society-is-as-bad-at-the-top-as-the-bottom/