Megan McArdle's Commenters, these cookies are for you!
Megan McArdle sees someone suggest that Bush's tax cuts for the rich should be eliminated and the money used for better purposes, and she decides that it just wouldn't make any difference. McArdle's problems with the argument:
Dylan Matthews at the Washington Post has asked what we might be able to do for the economy if we repealed the Bush tax cuts for the wealthy and spent the money on something else. The result is a nice post full of graphs, but the answer seems to be "not much"--the very best estimate is that we get about $75 billion in added economic activity, or about $25 for every person in the country.
The first two commenters correct her math. "Or $250, whatever," says the first. The second: "Using current census data, I get $244 per person, but yes let's call it $250, Megan was off by a factor of 10." McArdle and math are two ships that pass in the night, never to have contact. Fortunately her commenters are available to do her long division for her.
That, mind you, requires some pretty big assumptions.
For starters, it assumes that the rather optimistic estimates of Mark Zandi about the size of the stimulus multiplier are correct. Estimating stimulus multipliers is incredibly difficult when you try to do it at the macro level (how much spending equals how much extra GDP), and even more difficult when you try to figure out whether food stamps are better than a jobs program--the examples are fewer, and the amounts are smaller, making it hard to pick up direct effects.
So after the bad math and bad macro we're left with....multipliers are hard to estimate. Not incorrect, but the estimates we have are not pulled out of thin air, but based on a lot of empirical research, soooo, I'm not feeling it is a very strong objection, especially in light of the fact that she doesn't assert any reasons why we should expect that they're wrong. This like Megan noting that designing skyscrapers is hard. True, but unless she has a reason why there is a problem with the design for this particular skyscraper, the fact that it is hard isn't a reason not to build it.
It also assumes that any measured increase in GDP measures some improvement in human welfare. It is trivially true that if you increase one component of a measured variable, that variable will get bigger. It's much harder to know that any particular increase in GDP represents a real change in human welfare, or merely moving chess pieces around the board.
It's the old "it's too hard to understand" trick, as Maxwell Smart might say.
This is true, but utterly banal and irrelevant. Almost all discussions in policy, including many that Megan has involved herself in, use GDP as an imperfect metric of welfare. This isn't perfect, but there are many good reasons for believing GDP is a pretty good metric of welfare. For example, Okun's law, which is actually an extremely well supported conjecture that GDP and unemployment are negatively correlated.
This is my favorite part. McArdle:
Too, this basically assumes that there are no dynamic supply-side effects from the tax increase. And it assumes that the multiplier from a tax cut is the same as the lost GDP from a tax increase, which is not necessarily the case--where you start matters. In this case, we're starting in the middle of a recession, when people may find a tax increase more worrying, because they're already feeling more financially insecure. To be sure, that worry might push them to work harder, or to hunker down and do as little as possible. But there's no reason to think that it's somehow steady state through good times and bad.
In a time when income inequality has soared, McArdle wants to tell us the rich are so worried about income insecurity that they would not spend money if their taxes are raised.
Inflation adjusted percentage increase in mean after-tax household income between 1979 and 2005.
This ignores the incredibly low tax rate for the rich, the actual amount of money the very rich have, their use of tax shelters, and basic human nature. The rich are not checking their on-line bank account every day to see if they can afford a new Prada bag. They have more than enough money to spend and probably will not cut back their hours running global companies because mean Mr. Obama raises their tax rate.
This is why conservative leaders want to put Reagan on Mount Rushmore.
This entire argument is silly. As if we'll just hand out $250 dollars to every person in the country. What a ridiculous idea from Megan and [other commenter].
These tax cuts (along with other Bush policies like medicare part D and unfunded war) have been the primary contributors to the debt over the last decade, along with the lagging business and poor growth.
The idea that if wealthy people have slightly less wealth they'll dramatically affect jobs or the economy is just silly. How can 3,500,000 people possibly move a consumer economy of $14 trillion in any appreciable way?
Unless your assertion is that they regularly engage in orgies of spending, specifically because of these tax cuts and the moment they are repealed they will come to their senses and stop buying stuff? Maybe they'll realize they don't need all those helpful staffmembers and servants and unemployment will go up? They'll stop investing and stuff their mattresses?
My experience is that the wealthy don't spend much money at all - that's why they got there and continue to be there. I think your theory is crap.
Back to McArdle:
Finally, it seems to assume that we could repeal the Bush tax cuts this year. We can't. As far as I know, you can't tax peoples' income retroactively, a legal nicety that considerably frustrated Congress in dealing with the AIG bonuses. By the time Congress actually got around to repealing the Bush tax cuts for the wealthy, they'd be getting ready to repeal themselves. It would be a pointless waste of legislative energy this late in the game.
Congress can change the rules for any taxable year which has not yet ended without causing any Constitutional problems. Basically they have until, depending on how you count, April 15 (assuming they don't change the filing date before then) of the next year to change the rules for the previous year. An argument could be made that they really only have until December 31st - though I know they've changed rules in the taxpayer's favor after that but before April 15 - but in either event they can change anything for year when the final tax due is not yet determinate.
What I remember from previous mid-year tax increases (IANAL and IANACPA) is that Congress can, and has, increased taxes mid year and it has been effective as of the start of the year. (A quick wikipedia search on ex post facto laws shows that this goes back to Calder vs. Bull in 1798!)
Especially when you think that the cheery estimate is a gain of $75 billion, which sounds like a lot in terms of my income, but is, in terms of our national income, the equivalent of one extra pizza party per person. I like pizza and all, but I think we have bigger issues to worry about right now.
Let's see: (1) you got the amount wrong by a factor of 10 (which weren't so bad if you didn't make such a big deal of that amount, but you did, with 'one pizza party per person' and all); (2) you were wrong on Congress' ability to repeal the Bush tax cuts for the current year; (3) even if you'd been right about that, FY 2011 (starting Oct. 1) stimulus such as Matthews proposes could be funded by repealing the Bush tax cuts effective 10/1/2010, which is in the future; (4) there are going to be no 'dynamic supply-side effects' of a tax increase, on top of the usual multiplier, in a world where we've got far more available goods, services, and labor than people are able to purchase - i.e. the supply side is already full to bursting; (5) it would be hard to make up a hypothetical route of the economic multiplier effect that *didn't* improve human welfare - and since while there are exceptions, increased GDP generally correlates with increased human welfare, the onus is on you to show how it wouldn't, in this case; and (6) sure, the amount's still not huge, but dammit, those of us on Matthews' side of this debate would LIKE a much bigger additional stimulus; his point was that, failing that, doing a little bit is better than doing nothing, and if paying for it is the hangup, here's one way to get a little bit of stimulus while actually paying for it at the same time.
How did McArdle take all the corrections? I'm glad you asked. Like this:
You're [zosima] wrong about [supply-side effect], since Matthews is discussing repeal now, not future opportunity cost, and no, it doesn't model the dynamic supply side effects, which don't necessarily take place in the same time frame as the stimulus. It is absolutely true that we have to used measured GDP, but the point is hardly trivial, and matters more depending on context. In this context, it's not clear, for example, that increasing measured GDP is decreasing unemployment or by how much, since it is, as you know doubt know, a lagging indicator.
But thanks for playing, and there will be some lovely parting gifts.
Zosima, let me see if I can put this kindly. Or frankly, let me not. Your obnoxious student crap is getting incredibly old. In fact, it was old when I was ten, because I come from a family of academics, and you're not even very good at it.
Knock it off and talk like an adult rather than like an anxious freshman who hopes that he can use arrogance as a substitute for manners and insight, or get off the board. You never had any realistic hope of intimidating me into conceding to your superior intellect, because as I mentioned, I come from a family of academics who are actually intellectually intimidating. But any hope you had was long ago squandered in our various interactions, where you have demonstrated a tediously mechanical grasp of talking points you've heard elsewhere, an imperfect familiarity with your intermediate coursework, and what seems like some sort of nascent personality disorder.
I've no doubt that you are charming and erudite in person, with many friends who respect your intellect and your deft wit. But for some reason, that is not shining through here. You haven't violated any explicit rule of the board except one, which is that you are annoying the hell out of me, and contributing nothing to the discussion. If this continues, I will ban you.
If you were better at contempt and sarcasm, I might let you stay, but I'm afraid it's just not your metier. You might experiment with respectful interaction, which is always welcome.
(She's 37, by the way, not 17, despite all appearances.) You see, because McArdle was raised by a family of intellectuals (her daddy was a lobbyist, her mother was a real estate agent and caterer whose family were dairy farmers), she also became intellectual by osmosis. She didn't need to study or learn, she just soaked up that elite knowledge by growing up with smart people. Which is why all children of intellectuals are intellectuals as well, and why the elite is so very very smarter than the rest of us.
Although we grew up in a family of smart-asses, so maybe there's something to that theory after all.
ADDED: Atrios notes McArdle's mad math skillz, as does Avedon Carol. Aimai adds her comment to McArdle's post, which we will reprint for posterity since it will probably irritate McArdle.
Hm, lets see if the site lets me post. Can I ask whether this long, incoherent and off point attack by Megan on poster zosina is, in fact, by Megan? I mean, look--for one thing the "Megan" in this post claims to be the child of academics when the real Megan, as far as I know, is the child of a former public employee turned lobbyist and a realtor. Second of all the real Megan presumably grasps that "being the child of academics" doesn't actually amount to an argument. No, really it doesn't. Actually, and for real, I'm the child of a Nobel Prize winner and for kicks I'll add I'm a third generation Harvardite. So what? This really, really, really, never comes up in academic arguments which are actually won and lost not by some kind of bizarre blood test but by concrete arguments. The "you are tedious and lack charm" argument is also one that I have yet to see adduced in a respectable discussion. Certainly, on the basis of the evidence from this thread, its hard to tell which of the two of you, the "megan" poster and the zosina poster is the younger. If I didn't know that the real Megan is 37 I'd have had to award this avatar the palm for most juvenile approach to intellectual discussion. Finally, I have yet to see the imaginary comments "Megan" refute any of Zosina's points. If this thread "Megan" isn't the real Megan I think the real Megan might want to step in and clean up the comments by deleting her. But if she is the real Megan I think the Atlantic might want to step in and jerk the blog entirely. This is a positively craptacular piece of incoherent special pleading on Megan's part, from the first post to the comment thread. Really, its shameful. And you don't have to be the "child of academics" to know that.
Actually, it would explain a lot if McArdle's posts were the product of a teenage performance artist. McArdle finally does refute zosina's points, with a predictable lack of success.