Paul L. Caron

Monday, November 17, 2014

Kleinbard Presents We Are Better Than This: How Government Should Spend Our Money at Loyola Marymount

We Are Better Than This (2014)Edward Kleinbard (USC) presents We Are Better Than This: How Government Should Spend Our Money (Oxford University Press, 2014) at Loyola Marymount tomorrow as part of its Center for Accounting Ethics, Governance, and the Public Interest Speaker Series:

We Are Better Than This fundamentally reframes budget debates in the United States. Author Edward D. Kleinbard explains how the public's preoccupation with tax policy alone has obscured any understanding of government's ability to complement the private sector through investment and insurance programs that enhance the general welfare and prosperity of our society at large.

He argues that when we choose how government should spend and tax, we open a window into our "fiscal soul," because those choices are the means by which we express the values we cherish and the regard in which we hold our fellow citizens. Though these values are being diminished by short-sighted decisions to starve government, strategic government spending can directly make citizens happier, healthier, and even wealthier.

Expertly combining the latest economic research with his insider knowledge of the budget process into a simple yet compelling narrative, he unmasks the tax mythologies and false arguments that too often dominate contemporary discourse about budget policies. Large quantities of comparative data are succinctly distilled to situate the United States among its peer countries, so that readers can judge for themselves whether contemporary budget choices really reflect our aspirational fiscal soul.

Kleinbard's presentation takes a multi-disciplinary approach, drawing on economics, finance, law, political science and moral philosophy. He uniquely weaves economic research and moral philosophy together by emphasizing our welfare, not just our national income, and by contrasting the actual beliefs of Adam Smith, a great moral philosopher, with the cartoon version of the man presented by proponents of the most extreme forms of private market triumphalism.

Book Club, Colloquia, Scholarship, Tax | Permalink


I will need to break this post into multiple pieces due to its length.

I was expecting to see Paul at this talk, but I didn't. I was also expecting Ed to slant it a bit to the left, but he went way beyond that.

You can see Ed's slides

Ed went all in for what he called a "more muscular government". The government needs to do more, not less. It needs to promote more "jobs with dignity". Does that mean a future in which there are no garbage collectors or gardeners or fast food workers? He didn't say.

One point on which I agree is that government should honor the core value equality of opportunity. We disagree on what that means.

His solution starts with equalizing spending on all children, rich and poor. He stated that Americans spend more on educating rich children than poor children, because the parents of the rich children add so much of their own money. Pardon me, but I strongly disagree that it is the government's job to neutralize all parents' efforts to help their children succeed. Inadvisability aside, I believe the parents in question will make such policies politically impossible.

Parents already face high effective tax rates on their spending for children. Private school costs must be paid from after-tax money, and college financial aid imposes a large surtax on the incomes of upper middle class parents who are not rich. These parents sacrifice their lifestyle to pay and pay and pay, and the government should just hand the same money to parents who don't work as hard or sacrifice as much? That's a recipe for a taxpayer revolt.

Ed stated that rising income and wealth inequality is the largest socio-economic issue of our time. Personally, I think the huge fiscal gap is the largest socio-economic issue, because it could bring our society down much farther and much faster.

Posted by: AMT buff | Nov 18, 2014 11:12:23 PM

Ed mentioned Greg Mankiw's recent article which I believe is this one:

Ed found "odious" Mankiw's statement that I will quote here in full for accuracy:
"...the intergenerational transmission of income has many causes beyond unequal opportunity. In particular, parents and children share genes, a fact that would lead to intergenerational persistence in income even in a world of equal opportunities. IQ, for example, has been widely studied, and it has a large degree of heritability. Smart parents are more likely to have smart children, and their greater intelligence will be reflected, on average, in higher incomes. Of course, IQ is only one dimension of talent, but it is easy to believe that other dimensions, such as self-control, ability to focus, and interpersonal skills, have a degree of genetic heritability as well."

Ed did not dispute the accuracy of Mankiw's statements, only that they could lead to some places we don't want to go. I imagine that includes eliminating the presumption that all groups of people will achieve equally given equal opportunity, and that if they don't it's the government's fault. Inequality of ability, on average, between children of rich parents and poor parents is a highly inconvenient truth to progressives. In my estimation it threatens the very foundation of outcome engineering discrimination masquerading as equal opportunity.

There are those, presumably including Ed, who believe that a government-sponsored thumb on the scale is warranted to offset the parents' thumbs on the scale, including the parents' very genes. I submit that such a view is far out of the mainstream. Most of us do not regard our DNA (including some portion of our intelligence, diligence, and self-discipline) as simple luck, subject to offset by goverment. If our DNA were different we would not be the same person! Nor do parents regard their contributions to their children's success as cost-free and subject to offset by government. We are not crops to be cut to the same level across the fields of a Soylent Green farmer.

Posted by: AMT buff | Nov 18, 2014 11:14:03 PM

Ed believes that some market outcomes are just and some are not. I think we can all agree on that. He would like the government to correct that. I believe that history illustrates that this cure will be far worse than the disease, at least until the time when government is no longer run by humans. When government decides which market outcomes are just and which are not, the government is by definition picking winners and losers. With humans controlling the government how can this not lead to corruption and tyranny?

Ed presented quite a few slides on income inequality with no mention of the controversy about the numbers. There have been any number of recent articles disputing the validity of income statistics, based on household size changes, the post-1986 shift of business income onto personal tax returns, and the absence of certain types of income from the data. Ed's talk treated the income inequality data as 100% sound and unchallenged when it is not.
A two-second phrase "Although this data has been challenged" would have sufficed to alert listeners.

Ed disposed of what I consider to be a straw man argument that the "Growth Fairy" (I love that term!) needs lower taxes. There are some rabid right-wingers who say such things, but from where I stand the barriers to growth can be summed up in one word: Uncertainty. The huge fiscal gap requires major change in our relatively near future. Neither party has put forth a rational plan for that change. Secondarily there are policy and regulatory uncertainties. We don't know what our immigration policy will be next week, let alone 5 or 10 years from now. Democrats treated a sick economy with a massive dose of health insurance cost uncertainty, suppressing employment much more than they realize.

Aside from uncertainties, I agree with Ed that the USA has no major barriers to growth. Unlike many countries in Europe, the US has Low barriers to firing employees and to starting businesses are a help. Ed hinted that he favored increasing the barriers to firing people, but in my opinion that would reduce hiring and increase nepotism and other forms of discrimination.

Posted by: AMT buff | Nov 18, 2014 11:15:57 PM

Other tidbits, with my comments in parentheses:

Luck's effects are pervasive in life's outcomes. (Agreed, but people will NEVER see their DNA as luck, since different DNA makes a different person!)

The US tax system is the most progressive but it's "teensy weensy". We need to spend 34% of GDP rather than 32%. (These percentages do not include government mandates such as the requirement to spend thousands of dollars on comprehensive health insurance.)

Germany and Nordic countries spend more and tax more, less progressively. (I've read that the difference is mostly a VAT on the tax side and government-funded health care on the spending side.)

Our "fiscal soul" requires us to recognize our larger obligations to increase happiness of society removed from models of perfect markets.

Government is just all of us acting together. (Like when the President defies Congress on immigration policy? Like giving us the ACA when a majority of Americans opposed it and still oppose it?)

The tax distribution is not lopsided. (True as percentages of pretax income, but the net cost of government after benefits received *is* lopsided)

The USA has worse income inequality than all other countries except Chile and Mexico (if you take the income data at face value without making any adjustments for its defects)

Sensible people measure poverty in relative terms within a country (If that's true then the War on Poverty can truly never be won)

Posted by: AMT buff | Nov 18, 2014 11:19:08 PM

Male median earnings are flat for the last 40 years at $50k (That's an objective fact)

The wage gap between women and men is "inexcusable". (The 79% statistic Ed quoted has been debunked any number of times. It's not an apples to apples comparison, as Ed should know.)

Existing transfers largely fund the elderly, who receive close to 70% of transfers (I don't know if this includes medical payments to providers on behalf of the elderly, but it does sound correct)

Infrastructure investment is at a long term low. (Infracstructure spending doesn't buy enough votes.)

Incomes have grown the most at the high end after tax and after transfers (The suitability of this data is debated.)

The US military spends more per capita than Israel. US government health care public spending is the second highest behind Norway and private health care spending is just as high.

The problem with the ACA was that it did too little, not too much. (Nobody has shown a palatable`1 2 answer to health care spending, but adding a major entitlement to the already impossible fiscal gap can't have been the right approach.)

Ed's talk was delivered with skill, humor, and intensity. I disagreed with most of it, but I never lost interest. He's a great speaker.

Posted by: AMT buff | Nov 18, 2014 11:20:42 PM