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11/14/2010

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D.S.

Indeed Jack,
I am not going to make any immediate drastic lifestyle changes because I am far off from making 250k or over, save the great new incentive to retreat to working 6 months out of the year, drop my income below $88k and thus have taxpayers pay for my healthcare premiums (I must admit that is a strong enough incentive to make me ponder retreating to ½ or ¼ time work come 2014, when Obamacare wealth transfer kicks in full force).

But even if I don’t make changes as a middle class income earner, when the guy with the outsized innovative brain who is already operating at the margin of his stressful career decides that it ain’t worth killing yourself that much on the job, and lets the, say, Android operating system fall to 3rd,4th 10th place in the world, then I’ll be affected too, whether I make redistribution incentive instigated changes myself or not. I add one kind of value if, under the intuition of the guy with the outsized brain, I work on an Android system so good that it will appeal to 100 million people, and I add a different kind of value (and commensurate compensation) if I work on a 10th place system that will only get 3% market share. Similarly affected will be people that depend on me such as technicians and other who belong to our beloved working folk. In a nutshell, you grossly underestimate the productivity leverage that the few people with the greedy innovative outsized brains and over 250k incomes have on the value of what we finally produce and how exceptional it must be for our high end wealth enabling products to dominate in worldwide markets.

It will only take 2%-5% of the people with the outsized brains, at the margin, actually modifying their behavior some, to, say, less exceptional goals (I’m not nearly talking about getting anywhere close to complete quitting here) to get a 1-2% perpetual hit on GDP which, BTW will keep compounding every year. Who will snatch up the highly leveraged void left by the somewhat less motivated innovative greedy brains? The working folk?

---------
When it comes to healthcare, there are better ways to improve the quality/cost ratio. Moving towards nationalizing the industry will make the ratio worse. And, more importantly, having people who make more than 88k pay the healthcare costs of those who make less will hit hard GDP below the belt in terms of incentives. For better or for worse, there is no way around the effect that these measures have on incentives to produce.

Unlike me, you were probably born in this country and I’m not that surprised that you seem to have little idea about what is the advantage this country has had over the rest of the world. Like an increasing number of your fellow American citizens you seem oblivious to the great “coincidence” of selfish America having remained the most prosperous country in the world for over 100 years. What do you think the key to this exceptionalism is? “Our central planning and redistribution is better than theirs?”

But be optimistic. Because it is your plan that America will experience. Not mine. After all, I’m actually a foreigner to this country. Here today, gone in a few years, offering my services to your competitors, if you decline. So, good luck to those of you less mobile. Take American prosperity for granted and keep hoping that lower incentives to produce will allow you keep it.

I, myself, having secured a life boat, I’m ready to leave work and party on the American Titanic. The boat of HOPE and CHANGE.

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Brian Davis

Prof B and Judge P, the only thing we can say with confidence at this moment is that the Fed has surely debased the Dollar, I mean in an in-your-face sort of way, but our foreign creditors and trading partners haven't nuked us yet. Meanwhile, public and private Chinese interests are accelerating their purchases of U.S. assets. I think we can guess where this is headed.

Jack

DS Thanks for continuing the conversation. Like many it appears you tend to overstate the "impacts" and effects of minor changes.

Looking over the income graph below, it appears you're well established somewhere in the 80th percentile range which unlike the ranges below still appears to have an upward tilt. (It would be better if you could leap to the 95th percentile though, where the real gains ARE being made.) In any case since income taxes still top out at well under 40% I'd remind you that most of each additional buck does accrue to you and that savings are a good thing these days both as a personal matter as well as a (claimed) matter of public policy.

But! one might also consider that given the backbreaking work week of the day, opting for an easier and more humane pace could be personally rewarding as well as offering an opp for the younger folk to move up or an unemployed person even part time employment.

As for your concerns about innovators, I worked for innovative companies in a go-go era and found most innovators happy to work on a challenge rather than relate it to compensation on a daily basis.

True! It was an era when we could job hop our way to levels of nearly guaranteed incompetence in a very short order, but of course innovators revel in working at the brink of incompetence which is how we navigate our way in the foggy unknown to an ill-defined future that may well be a major reason for the oft claimed "American exceptionalism". But! looking back after a few wise or unwise job hops, I noted that not only were our past positions filled but that the caliber of those filling them redoubled our efforts to keep up.

Yes....... I was born here, though as many of mine and previous or subsequent generations one of my parents were not. The grand-parents of the President who hope that "a rising tide (of productivity) would lift ALL of the boats emigrated to Boston as well. I'm not sure what newer immigrants are "into" or whether they've been beaten down along with the rest of American labor to be content with the rising tide lifting only the gold plated yachts while the launches and skiffs are left to sink.

In any case I'm enough of a humanist not to be satisfied with an H/C delivery "system" that costs nearly double that of the civilized nations with which we now must compete that leaves out 50 million or our hardworking folk

Also, I'm still enough of an innovator or systems engineer to see quite clearly that a system resulting in folks showing up half dead in overloaded, COSTLY, ER's with poor outcomes and making medical costs THE number one cause of personal bankruptcy is HARDLY an example of "American exceptionalism".

Lastly, while I'd HOPED for the cost-compressing public option, if the insurance lobbyists have beaten cost compression out of the deal, then SOMEONE will have to pay. Now given (see the graph again?) how US wages have.............. "evolved?" truth is those of median incomes and below can not afford any more costs.

Would you rather see an incomes policy? more collective bargaining? higher min wages? Or? higher taxes for those who garnered literally ALL of the productivity gains since 1980?

Jack

The graph:
http://lanekenworthy.net/2008/03/09/the-best-inequality-graph/

Jack

Best bang for the stimulus buck:

Marginal Propensity to Consume, targetting the Multiplier and "benevolent" consumption

As has been discussed, the Multiplier relies on the MPC (Marginal Propensity to Consume). The use of the term MPC here, is a reference to the MPC of a country (or similar economic unit) as a whole, and the theory and the mathematical formulae apply to this use of the term. However, individuals have an MPC, and furthermore MPC is not homogeneous across society. Even if it was, the nature of the consumption is not homogeneous. Some consumption may be seen as more benevolent (to the economy) than others. Therefore spending could be targeted where it would do most benefit, and thus generate the highest (closest to 1) MPC. This has traditionally been regarded as construction or other major projects (which also bring a direct benefit in the form of the finished product).
Clearly, some sectors of society are likely to have a much higher MPC than others. Someone with above average wealth or income or both may have a very low (short term, at least) MPC of nearly zero - saving most of any extra income.
But a pensioner, for example, will have an MPC of 1 or even greater than 1. This is because a pensioner is quite likely to spend every penny of any extra income. Further, if the extra income is seen as regular extra income, and guaranteed into the future, the pensioner may actually spend MORE than the extra £1. This would occur where the extra income stream gives confidence that the individual does not need to put aside as much in the form of savings, or perhaps can even dip into existing savings.
More importantly, this consumption is much more likely to occur in local small business - local shops, pubs and other leisure activities for example. These types of businesses are themselves likely to have a high MPC, and again the nature of their consumption is likely to be in the same, or next tier of businesses, and also of a benevolent nature.
Other individuals with a high, and benevolent, MPC would include almost anyone on a low income - students, parents with young children, and of course, the unemployed.

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Jack

Another viewpoint: Axis of Depression

by Paul Krugman

What do the government of China, the government of Germany and the Republican Party have in common? They’re all trying to bully the Federal Reserve into calling off its efforts to create jobs. And the motives of all three are highly suspect.

It’s not as if the Fed is doing anything radical. It’s true that the Fed normally conducts monetary policy by buying short-term U.S. government debt, whereas now, under the unhelpful name of “quantitative easing,” it’s buying longer-term debt. (Buying more short-term debt is pointless because the interest rate on that debt is near zero.) But Ben Bernanke, the Fed chairman, had it right when he protested that this is “just monetary policy.” The Fed is trying to reduce interest rates, as it always does when unemployment is high and inflation is low.

And inflation is indeed low. Core inflation — a measure that excludes volatile food and energy prices, and is widely considered a better gauge of underlying trends than the headline number — is running at just 0.6 percent, the lowest level ever recorded. Meanwhile, unemployment is almost 10 percent, and long-term unemployment is worse than it has been since the Great Depression.

So the case for Fed action is overwhelming. In fact, the main concern reasonable people have about the Fed’s plans — a concern that I share — is that they are likely to prove too weak, too ineffective.

But there are reasonable people — and then there’s the China-Germany-G.O.P. axis of depression.

It’s no mystery why China and Germany are on the warpath against the Fed. Both nations are accustomed to running huge trade surpluses. But for some countries to run trade surpluses, others must run trade deficits — and, for years, that has meant us. The Fed’s expansionary policies, however, have the side effect of somewhat weakening the dollar, making U.S. goods more competitive, and paving the way for a smaller U.S. deficit. And the Chinese and Germans don’t want to see that happen.

For the Chinese government, by the way, attacking the Fed has the additional benefit of shifting attention away from its own currency manipulation, which keeps China’s currency artificially weak — precisely the sin China falsely accuses America of committing.

But why are Republicans joining in this attack?

Mr. Bernanke and his colleagues seem stunned to find themselves in the cross hairs. They thought they were acting in the spirit of none other than Milton Friedman, who blamed the Fed for not acting more forcefully during the Great Depression — and who, in 1998, called on the Bank of Japan to “buy government bonds on the open market,” exactly what the Fed is now doing.

Republicans, however, will have none of it, raising objections that range from the odd to the incoherent.

The odd: on Monday, a somewhat strange group of Republican figures — who knew that William Kristol was an expert on monetary policy? — released an open letter to the Fed warning that its policies “risk currency debasement and inflation.” These concerns were echoed in a letter the top four Republicans in Congress sent Mr. Bernanke on Wednesday. Neither letter explained why we should fear inflation when the reality is that inflation keeps hitting record lows.

And about dollar debasement: leaving aside the fact that a weaker dollar actually helps U.S. manufacturing, where were these people during the previous administration? The dollar slid steadily through most of the Bush years, a decline that dwarfs the recent downtick. Why weren’t there similar letters demanding that Alan Greenspan, the Fed chairman at the time, tighten policy?

Meanwhile, the incoherent: Two Republicans, Mike Pence in the House and Bob Corker in the Senate, have called on the Fed to abandon all efforts to achieve full employment and focus solely on price stability. Why? Because unemployment remains so high. No, I don’t understand the logic either.

So what’s really motivating the G.O.P. attack on the Fed? Mr. Bernanke and his colleagues were clearly caught by surprise, but the budget expert Stan Collender predicted it all. Back in August, he warned Mr. Bernanke that “with Republican policy makers seeing economic hardship as the path to election glory,” they would be “opposed to any actions taken by the Federal Reserve that would make the economy better.” In short, their real fear is not that Fed actions will be harmful, it is that they might succeed.

Hence the axis of depression. No doubt some of Mr. Bernanke’s critics are motivated by sincere intellectual conviction, but the core reason for the attack on the Fed is self-interest, pure and simple. China and Germany want America to stay uncompetitive; Republicans want the economy to stay weak as long as there’s a Democrat in the White House.

And if Mr. Bernanke gives in to their bullying, they may all get their wish.

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Hopefully Professor Becker and Judge Posner find some amusement in the rantings above.

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Prof Becker -

Please read this and respond to these arguments. This lust for deflation is really crazy.

http://www.themoneyillusion.com/?p=8050

JimP

Please read this and respond.

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but I believe that another large-scale Fed purchase of bonds is also against American interests.

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