Tax Policy as Explained by DuckTales

 

It should be no surprise that in this presidential election we yet again hear nothing but nonsense regarding tax policy from those seeking office. Among the many principles being ignored are:

• You cannot tax wealth more than once--if you can even tax it the one time given tax avoidance and evasion opportunities and incentives.
• You cannot lower taxes and increase government spending--government spending is taxation (today through taxes or tomorrow through debt).
• You cannot tax without discouraging that which you tax--there is no tax free lunch.
• You cannot tax income--it may look like you are taxing income, but you are actually taxing consumption. On this point we have DuckTales and the hero Scrooge McDuck as the perfect illustration.

If you try to tax Scrooge McDuck, you will be unsuccessful. He is tax proof. You are ultimately taxing Huey, Dewey, and Louie, and they are not being taxed correctly in this scheme. You are taxing the wealth creator dissuading him from creating more wealth and at the same time not discouraging the wealth/resource destroyers.

Uncle Scrooge McDuck is the "wealthiest duck in the world". Hence, he is an obvious foil for those who despair at the thought of billionaires. But Scrooge McDuck should be considered a saint to those who truly wish the best for all the other ducks of the world. For he is the ultimate giver. 

He creates vast wealth through his many businesses, but he uses very little of it. In fact his number one entertainment is simply swimming through his money and treasure which he keeps in a giant money bin. So in exchange for creating wealth he takes basically only money (claims on resources) rather than resources himself. Outside of funding his adventures for more wealth, he lives a quite miserly life. Say what you will about that choice, it is consequentially a very good one for the rest of the ducks in his world. 

Who really pays taxes? 

Taxes are a method of the financing of government uses of resources. In order for a tax to be paid, it must be the case that someone, somewhere, sometime not use a resource so that government can use that resource. Therefore, the payer of a tax is ultimately the entity that must forego the use of a resource. It is decidedly not the creator of the resource, per se. 

Who should we want to pay taxes? What should we tax and why should we tax it? 

I always argue we should tax resource use rather than resource creation and do so as efficiently as possible. We should tax if the use of the taxed resource is better and necessarily done through government rather than private entities. If that seems like a high hurdle, it's because it is.

Attempts to tax Scrooge McDuck are bad faith and poor logic.

What Explains Country Variation in COVID Deaths?

I see a lot of vague or implied speculation on why there are such large differences in COVID-19 death rates (et al.) among various countries and regions. But many of these have internal tensions once we think a little deeply about the arguments being hinted at. Biases are leading to a lot of lies of omission if not just outright bad reasoning.

Why is Sweden different than Finland? What explains Japan, Taiwan, and South Korea versus France, Italy, and Spain? Germany versus Belgium? USA NE versus Texas versus Florida versus USA Midwest?

Here is a partial list of the usual and some unusual suspects:

• General health in the population
• Partial immunity including from prior coronavirus exposures
• Climate including ability to comfortably be outdoors and in open-air environments (definitely relative to when the virus struck)
• Prior and continued use of various drugs and treatments
• Proportion of at-risk people especially elderly
• Quality of procedures for protecting the vulnerable
• Quality of testing
• Quality of tracing
• Population density (within cities and otherwise relative to where people actually live; e.g., excluding most of Canada when measuring for Canada)
• Government NPIs including lockdowns and other policies but not test and/or trace
• Degree of movement within and among various communities (city to city, within a city, cross sociodemographic, in and out of country, et al.)
• Strain(s) of C-19 virus affecting country and timing of the infection

I suspect that the error term in any formal analysis might prove to contain all the variation. Remember, "the greatest trick the devil ever pulled was convincing the world he did not exist."

The Forrest Gump Diet: A few simple rules for a better diet

Most dieting plans are nonsense. And most dieting is not about losing weight--it is about signaling that one would like to lose weight, is involved in a struggle, and would like sympathy. If people really wanted to lose weight, they would. 

Diets come in a thousand varieties, but it is clear that while each might work for a while for some people, they fail (or people fail them) as often as they work. That we know so very little about this highly desired realm of knowledge, it is a big economic paradox. My guess is that it is highly dependent on individual circumstances (extreme heterogeneity) and these are both governed by external environmental factors including cultural influences as well as genetic factors. As such, one size fits more than one might not be true. And yet I do think some guiding principles can be derived that can greatly help us on our journey:

1. Eat when you are hungry. (Note that this pushes back against intermittent fasting.) 
2. Eat slower. You are not in a speed contest. 
3. Eat less. You are not in a volume contest. This can most easily be achieved by simply not ever completely finishing what you have been served.
4. Eat less of the things that you want to eat. It is very likely that your desire is to eat more of the things that are not as good for you.
5. Eat more of the things that are not as desirable to you. This is the converse of the prior point.
6. Eat a greater variety. This likely helps with the gut microbiome, and it makes life more interesting. That said, some things may just not be right for your body, and that is fine.
7. Eat less processed foods and prepackaged foods. This one helps with #s 2, 3, and 4 by making food less convenient especially food that is generally nutritionally poorer for you.
8. Look to make good choices at the margin, but diet over weeks and months not hours and days. No one ever starved to death by missing a single meal, and no one ever became obese by indulging oneself one time. 
• The first key is to avoid temptation by avoiding bad situations. 
• The second key is to routinely seek to make a slightly better choice at each opportunity. 
• The final key is to be able to look back over weeks and months to see if you have generally been making good choices and improving choices. While this might entail the need to keep a journal, which is contrary to the spirit of this list of keeping things simple, evaluations over longer periods of time are essential to understanding if you’re making progress.

P.S. This is the diet that worked for me. I lost 20 pounds and it definitely improved some aspects of my health. Had I wanted to lose another 20 pounds, I would more devoutly follow it, but I want other things in life more. At least I'm honest with myself.

Oh, you left out a bunch of stuff.

The quick versus the dead. And a more complete review.

Imagine various conversations at a board of directors meeting of a major corporation. For example: Trying to save money by paying women less, trying to please customers by not hiring blacks, contemplating intellectual-property theft, discussing a new found way they can literally defraud customers, etc. These would all obviously be wrong and would not be within the scope of fiduciary duty or any reasonable ethical framework. I put cronyism in the same category. Contemplating how to get special favor and rent seeking from the government is unethical.

I've been thinking about this post for some time. It started five years ago reading this article.

Recently there have been several things that have me thinking on this again--making this as fine a time as ever to actually complete this post. 

Michael Munger has been thinking about this for some time. This EconTalk is a great discussion with him laying out the problem. And this more recent appearance on Free Thoughts is great as well. Still another discussion highlighting the nuances and difficulty of this topic is with Rebecca Henderson recently on EconTalk. 

The question that I think doesn't get asked enough is: At what point does activity like developing and utilizing business relationships, networking, and advocacy cross over to be cronyism? It is difficult to disentangle behavior and results between these two worlds. In fact people participating in the activity during or after the fact would find it quite challenging even if they could put their natural bias to the side--the bias to believe they were acting in good faith and to good ends using good information and sound logic. 

Use of other people's money is a big key, but it isn't necessarily a smoking gun. For example, Facebook uses cash (shareholder funds) to hire lobbyists to advocate for A) onerous regulations for social media companies or B) a continuation of the protections it enjoys under Section 230 of the CDA. The first case (A) is likely a blatant attempt to use the power of government to prevent startup competitors from challenging their market position. The second case (B) is likely a reasonably good protection of their shareholder's and other stakeholder's interests as well as actually a good protection of free speech and enabling force for social media in general. 

Other people's money can come not just from taxpayers and owners (shareholders in public companies most commonly but not exclusively) but from employees as well. Imagine employees of Facebook being asked to participate in a letter writing campaign to Congress. 

It is not so simple to assume that a company can or should endeavor to right the wrongs of society. Not everyone sees the problem the same way. And not everyone will agree on the means even when they agree on the side to take in the cause. I higher a business to do what they do best--make shoes, install tires, store my money, serve me food, etc. I will do my own charitable giving, thank you very much. This is one of many reasons why Friedman was right. 

How do we get out of this downward spiral? I don't believe it is easy. In fact it is quite challenging. Education and communication are likely keys. Transparency helps as well. But as long as government is both powerful and trusted, these problems will persist. 

Related: 

Just how captured is our economy?

Rent seeking: who is to blame?

It’s More Than Qualified Immunity

To truly help those suffering from poverty (poverty of justice, poverty of spirit, poverty of options, poverty of opportunity, poverty of consumption, etc.), we have to address all of the constraints and forces that are keeping people from being all that they can be. The police state abuses in general are an important aspect of this, but they are just a single portion of this plague. We must look deeper than these very important issues as they are themselves just symptoms of bigger problems. 

Qualified immunity is one particular, nuanced element in a much larger set of problems. The list of police and policing and prosecution reforms is deep:

1. End qualified immunity
2. End mandatory police unions
3. Require police to obtain individual liability insurance
4. Require body cams
5. End no-knock raids
6. Stop militarizing police
7. Implement substantial bail reform
8. End civil asset forfeiture
9. Reform plea bargaining to limit prosecutorial power
10. Strengthen the public defender process
11. We could go on and on.

But these alone are neither exhaustive nor completely sufficient. Broadly there are three additional major areas of reform that would start to help heal and to eventually enable tremendous growth in the communities that are suffering the most: 

1) Occupational licensure - Make no mistake about it. These are very simply anti-competitive policies to protect incumbents. They hide under the pretext of consumer protection yet operationally they are clearly a producer protection. The result is two groups of victims: the consumer generally and the weakest producers (competitors to the powerful vested interests). There is slow progress on this area, but much more is needed. 

2) Zoning and other forms of development restriction especially in housing - Zoning has racism at its origin. No, that does not imply it is still a racist policy in fact or in law, but it should give us pause in accepting it as innocuous. Zoning is still largely about keeping "them" out. Who "they" are varies. While a charitable reading leaves zoning as a plan to make the best decisions, it rests on a dubious logic that we can plan the future and government knows best. Housing unaffordability is a major obstacle to upward mobility for those in poverty (of all kinds). Barriers to opportunity are not a solution.

3) Most importantly the senseless, unjustifiable, and evil drug war - The drug war's biggest victims are those in the weakest position to fight back. Leave aside whether we have the right to punish people for doing things we wish they wouldn't but that otherwise only harm themselves. Leave aside the intentions of those who have promoted it. Prohibition does not work . . . no, it is worse than that. It very greatly harms. It must end if we are to build a world of justice and opportunity.

The Age of Fear

We live in an era characterized by fear as a dominating narrative and influence. The beginning of this era can be formally dated to September 11, 2001, but it began developing years prior. It continued and strengthened with the Great Recession. The fear of inequality drove both the Tea Party and Occupy movements. No proposed public policy solution escapes this phenomenon.  The Patriot Act, Sarbanes Oxley, the Affordable Care Act, Dodd-Frank, Trump's immigration actions and policies, are but some of the most notable examples. The Fed along with the macroeconomics profession and finance upper echelons has so feared inflation that we regularly get stagnant and slow recoveries.

At each turn we increasingly choose safety and security over the obvious risk and potential opportunity. Insurance in all forms is overvalued and desired especially at the expense of someone else. Bastiat's apt observation that "The state is the great fictitious entity by which everyone seeks to live at the expense of everyone else" has evolved into the state as the fictitious entity whereby everyone's risk is absorbed and destroyed at the expense of no one.

Now COVID-19 dominates our decision making. And the opportunists are always there to fulfill their portion of the bootleggers and Baptists story. 

Tyler Cowen has seen this developing for some time. We are not the little engine that could. Where are the people not just chanting but demanding that "the show MUST go on"? 

I am not arguing that fear and risk should be ignored. And it is not lost on me that our growing wealth and well being has dramatically changed the risk calculus for society--this is a good thing. But all risk analysis must be properly constructed, weighted, and continually reconsidered. Otherwise, costly errors will occur and compound.

As always, the future belongs to those willing and able to take and bear risk.

In Case of Pandemic Break Glass

Here is a message to future generations for when they find themselves in the next pandemic. This is subject to change, but you would already know that if you had started reading the list.

These are the rules and guidelines I would suggest for the next pandemic: 

(Yes, there is redundancy and overlap in this list. That is a feature not a bug.)

1) Be Willing To Change - Adaptation >>> plans. Your plan is great as a starting point. Grey board beats white board. But an eraser and a willingness to use it is best. Your plan will not entirely survive first contact with the virus. This is as ironclad of a law as you'll get in this realm.

2) Protect The Vulnerable - How is this not obvious? Well, it seems it very much wasn't this time around. And know this: you cannot always predict who the vulnerable will be. 

3) Practice Good and Improving Hygiene - Tighten up. Here is an example of where general pushback against conventional wisdom reverses and we need to speedily go in the other direction--side with conventional wisdom of being more hygienic during a pandemic. We have been getting cleaner and cleaner as a society. As we've gotten richer, we have gotten less tolerant of risk in general and health risk specifically. This long-term trend has an unintended consequence: we over protect--especially children. "Rub some dirt on it" is an exaggeration, but it has some truth. We should pushback generally against the tide of puritanical cleanliness. We need exposure to germs. But in the face of an acute and new health threat, this reverses. Then is no time to develop hardiness--at least not until we know a lot more about what we're up against. Hand shaking shouldn't be abandoned per se, but the norm should probably be to quickly pause the practice when a health risk arises.

4) Test, Test, Test, and Test Some More - Each of these links have unique, subtle points along the general line of the importance of testing. Yes, there is redundancy, but that is the point I'm trying to hit you over the head with. At the hope of repeating myself, testing is a key ingredient to knowledge in a pandemic. Here is the idea by analogy: You're suddenly in a pandemic . . . oh, no problem, we know how to pandemic, bro. No, you certainly do not. Each one has different features and each time the environment has changed (economically, normatively, politically, etc.). Image I put you in a large, completely dark room and told you there are dangerous things in the room and you need to escape. I hand you a dim flashlight as your only tool. It works sparingly requiring you to flip it on and off repeatedly to get some light. Not ideal but you would be quite foolish to toss the flashlight to the side and grope around blindly instead.

5) Don't Believe In or Rely On Magic - ..... masks, hand washing, existing drugs with non-obvious potential for help, experimental drugs, ventilators, et al. may help. None are perfect cures or magic bullets. Many ideas will have very large costs that may in fact greatly outweigh the benefits. Try lots of stuff (see #7 below), but don't rely on any one thing or set of things. And don't latch on to that first idea and refuse to let go (see #1 above)

6) Invest in Options Including the Value of Delay - "Flattening the curve" evolved into a constant moving of goalposts in order to justify desired policies. This was a combination of the wrong way to interpret #1 above and the exact problem #5 above and #8 below are opposed to. But the idea had immediate traction because it had a very plausible initial value--delaying even the inevitable can make the inevitable more manageable if not largely reduced in magnitude. Every month after March brought new developments in treatment and most likely a lower severity in the disease itself via natural mutation. But delay isn't costless (see the links in #5 above). Though options require premiums, they are still vastly undervalued. Testing and isolating and distancing (see #3 and #4 above) create options. And don't just do something, stand there actually can be an option-preserving strategy. 

7) Experiment (Let 1,000,000 Flowers Bloom) - Let people take risks. This is both a principled position as well as a pragmatic one. We need ideas from the most unlikely of places. We need discovery.

8) Don't Attempt To Centrally Plan - It never works well for general problems and it is downright disastrous in a fluid, developing emergency. The knowledge problem is most applicable and important in dynamic, high volatility, low confidence environments. For central planning to succeed even in theory the unknowns must be minimal and the variance must be low. Simple is better. Fewer cooks in the kitchen (i.e., Congress and lobbyists and the alphabet soup of agencies and a politically myopic U.S. President and risk-averse though power-happy governors ...) would prevent entangled messes that do little to help, too much to harm, and a lot to hurt. The bureaucracy is the nature of the state. Leveraging government in times of crisis maximizes its every shortcoming, hindrance, and corruption. 

9) Trust The Market - Allow prices to adjust (don't worry about 'price gouging'; rather embrace it). Allow profits. For God's sake if there is ever a time when you want to reward risk takers and resource providers, it is in a time of dire crisis. See below for more on why you don't need to worry about people taking advantage. People want to help. There are many avenues for social and normative guidance. Man desires not just to be loved but to be lovely--let him! Do not let your personal envy or hypothetical fears prevent those standing ready to help.

10) Trust People - Lord of the Flies was wrong. People respond to incentives and information. If you give them good and updating versions of both, you can expect good and improving results. If for no other reason than their personal self-interest, people will tend to make sensible and safe decisions. In fact they are very likely to be overly risk averse. 

11) Question Authority - Challenge the motives and knowledge of every solution provider in direct proportion to how confident or authoritative they claim to be.

12) Communicate, Communicate, Communicate (honestly and don't censor) - Lies undermine productive efforts and credibility.  Censoring prevents much needed experimentation and fosters distrust. If restricting dangerous activities including potential superspreader events is desired, say so. Give guidance and elevation and promotion to good advisors. Be open to and have a high tolerance for new ideas, debates and debatable positions, and mistakes. There will be mistakes. It is not how you prevent them as much as it is how you adapt to them once they occur. Because adaptation >>> plans . . .