Matthew Yglesias » No New Thing Under the Sun

Jul 11th, 2009 at 2:26 pm

No New Thing Under the Sun

Senate Finance Committee debates relative merits of “surtax” on high-income taxpayers versus a beer tax . . . in 1921. The idea of a “fountain syrup tax” even gets mentioned.

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24 Responses to “No New Thing Under the Sun”

right Says:
July 11th, 2009 at 2:51 pm
I can’t figure out if the mistake in the post title is intentional. Knowing MY, I’m suspecting not.
Ted Says:
July 11th, 2009 at 3:10 pm
Perhaps some kind of pun on “over” and surtax?

But, yeah, if I had to guess, I would guess it was just Matt’s usual ability to displace words in a random but maximally confusing fashion.
shooter242 Says:
July 11th, 2009 at 3:14 pm
I like the beer tax idea. It’s about time for the bottom half of households pull their weight.
fostert Says:
July 11th, 2009 at 3:28 pm
You know, we’ve been taxing beer pretty heavily for a long time. We beer drinkers have been subsidizing the rest of the country for years. How about a church tax. Religion is every bit as addictive as alcohol, and maybe even as destructive. Yet the churches have been a tax-free haven from the start. How abut a dollar per sermon surcharge?
James Robertson Says:
July 11th, 2009 at 3:47 pm
Never mind the politics of raising taxes “on the rich” – there’s just not enough money there for any of the things you have in mind – the ridiculous stimulus bill, the proposed second stimulus, the health care boondoggle, and the absurd climate change bill.

If you want to fund these adventures, you’re going to have to start telling the truth about how far down the scale tax rises are going to go. Try reading Megan McArdle.
joejoejoe Says:
July 11th, 2009 at 3:48 pm
Nothing says ‘US Senate’ like a bunch of old white men talking about sasparilla. Take your time soda jerks, at least we have our health. Oh wait…
Aatos Says:
July 11th, 2009 at 4:29 pm
Gunshot wounds cost a ton of money and they are part of the reason our health costs will never be as low as Europe. Jama pegged the numbers at $17,000 per bullet wound and $2.3 billion to the health care system in 1994.

So when you’re talking about consumption taxes to help pay for health care, there should be an ammunition tax of $1 per round.
fostert Says:
July 11th, 2009 at 6:10 pm
“$17,000 per bullet wound”

Wow. I won’t question Jama’s numbers, they are probably right. But that’s a high cost. Pulling a bullet out is usually pretty easy. But there is often some tricky vascular work. And maybe some bone reconstruction. But that’s about what an ACL surgery costs. And let’s face it, we should be experts at gunshot wounds by now. Between crime and war, we’ve seen a hell of a lot of bullets. It’s amazing it still costs that much. But that $1 per round tax seems a little high. Most bullets don’t actually end up in humans. I’ve fired off several thousand rounds, and not one of them hit a human. Or an animal, for that matter. I’m all for a tax. It seems sensible, even for this gun owner. But how about 20 cents? And maybe some rounds should cost more than others. A 30-06 round probably shouldn’t be taxed at all. That’s for hunting. But a 7.62mm round (AK-47), probably should be taxed. I know that’s strange, given that they are similar, it’s just they go into different kinds of guns. But that’s tricky isn’t it? There are some nice 7.62mm hunting rifles. A friend of mine has one, and we can share ammunition when I bring the AK-47 along. Maybe tax the clips? But taxing handgun rounds probably makes the most sense. They are only used to kill people. Nobody hunts with a handgun. I’d also tax the .223 round. That round is so nasty, it deserves a tax on general principle. And given the kind of medical damage it causes, it deserves an extra high tax. Most bullets go straight through, but the .223 takes a few turns on the way. Nasty.
JonF Says:
July 11th, 2009 at 8:33 pm
Re:
Senate Finance Committee debates relative merits of “surtax” on high-income taxpayers versus a beer tax . . . in 1921.

Given that Prohibition took effect in January of 1920, what kind of beer were they going to tax? Root beer?
Andruw Says:
July 11th, 2009 at 8:51 pm
Holy Shit-thanks James Robertson; I haven’t read Megan McArdle since MY left the Atlantic.

She is pretty dumb.
James Robertson Says:
July 11th, 2009 at 9:45 pm
Andruw – I note you threw a pejorative, but you don’t dispute the basic mathematics. There’s not enough money available from the rich. That’s not an argument about the merits of taxing at higher rates; it’s a simple math fact.
Anonymous Says:
July 11th, 2009 at 10:58 pm
James Robinson: Yglesias has (rightly) argued quite a few times that more taxes for the bottom 95% is going to have to pay more in taxes eventually. But if all you need is the 100 billion a year needed for the proposed health care bill, that’s entirely doable.

Also, you are making your point in silly ways. The stimulus is a one-off expenditure which although a big chunk of debt is of an entirely different budgetary nature than an ongoing long-term expenditure. Taxes will eventually have to be raised to pay for the increased debt, but the debt is there. And cap and trade will raise money: THAT’S THE WHOLE POINT. the government takes money from those who wish to emit carbon.
DTM Says:
July 12th, 2009 at 1:11 am
Leave it to James to cite something which doesn’t actually back up his claim other than to assert it without proof as well.
Nathan Says:
July 12th, 2009 at 12:58 pm
1921.. I believe that was the year of the worst recession in our nations history. Of course, this was before government intervention was in fashion and the country recovered in record time.

With a budget of 6.3 billion in 1920, 5 billion in 1921, and 3.3 billion in 1922, along with reductions of the surtax from 83 to 65 percent there was little the government could do to stop the recovery, and by 1923 unemployment was below 5%. Don’t expect to hear about this in any history books, it wouldn’t support the liberal view of the world.
DTM Says:
July 12th, 2009 at 1:22 pm
1921.. I believe that was the year of the worst recession in our nations history. Of course, this was before government intervention was in fashion and the country recovered in record time.

This is total nonsense, of course, in more ways than one. The only grain of truth in this claim is that the post-WWI recession of 1918-21 was relatively sharp. However, it was also relatively short-lived. That is because it was caused by the end of wartime production and the return of the troops to the labor pool, and after a brief conversion period those factories and workers were able to be retasked. Of course, the fact that this was specifically a post-war recession is also why it has little to tell us about cyclical recessions (see also the recession of 1945, a very similar sharp but brief post-war recession).

In fact, prior to the Great Depression, the worst cyclical recession was probably the Panic of 1893, with six years of double-digit unemployment from 1893 through 1898, 15,000 failed businesses, 600 failed banks, untold numbers of life-savings and homes lost, and so on. The Panic of 1873 was no picnic either, however, also with several years of high unemployment and something like 10,000 failed businesses. In fact, some people treat the Panics of 1873 and 1893 as just book-ends to one long period, the “Long Depression”.

Of course, know-nothings like Nathan like to pretend these 19th Century cyclical recessions never happened. And if forced to confront these historic events, they like to cite GDP statistics, which for what was an industrializing nation at the time aren’t particularly relevant (see, e.g., China today, which needs strong GDP growth just to keep its people from rioting–and did I mention the riots during the Panics of 1873 and 1893?). Of course the real measure of how bad these recessions were is ultimately unemployment, and by that measure they were indeed terrible recessions.
Nathan Says:
July 12th, 2009 at 4:04 pm
Ok, so let me get this straight. Government intervention and control of the economy during the war basically mis-allocated resources into unproductive and wasteful industries (weapons) and when this spending was stopped the market needed to reset to it’s natural state. Thus, a recession, and a rapid recovery.

You seem to agree that government expansion and encroachment upon the economy and workforce is a bad thing, but label it as a cure when instead the government over expands the monetary base (and ultimately higher orders of production) and causes a recession. Is it not synonymous with the 1937 recession, when years of government expansion were finally checked, and the economy dipped again? How does one ever get out of the weight of government control under your ideology?

It’s interesting that during the “Long Depression” productivity increased at a faster pace than deflation. Things were getting drastically easier and cheaper to make, and in an environment with relatively stable monetary supply, prices drop (ex. computers/tvs today). Not such a bad situation, unless of course you are a government owned monopoly making those products.

untold numbers of life-savings and homes lost

This is fairly typical of your post. Untold pain upon the masses? Any evidence? The story of humanity since it’s birth includes untold amounts of suffering. There is no evidence to suggest that government intervention improved the lives of the poorest. In fact, we have case studies (USSR) where government starved and impoverished millions of people as it took over the economy.

I would love to hear what you think about Hazlit’s critique of the general theory since you seem to know so much.

How about Mises’ Human Action? Such a well read and knowledgeable individual as yourself should have read and properly addressed such logical and devastating critiques of Keynesian ideology.

It’s interesting you mention GDP, Paul Krugman (your economic messiah) seems to think it’s awfully important:

http://krugman.blogs.nytimes.com/2009/04/19/poor-texas/

Who cares if the places are completely different? Lower per capita GDP = poor and starving people with dead end lives. Only an idiot would disagree?

Except when it disputes your worldview. Then it’s all about the intangibles. “People were dying in the streets!” as if there was a time in history when people magically suspended the inevitability of death.

It is really entertaining to read the lengths people such as yourself will suspend understanding, simplifying situation as it suits you, then in the same breath over-complicating it so you may call anyone who rejects your analysis an idiot.
DTM Says:
July 12th, 2009 at 8:07 pm
Government intervention and control of the economy during the war basically mis-allocated resources . . . .

Um, no, this wasn’t necessarily a mis-allocation of resources. That depends on whether WWI was worth fighting.

You seem to agree that government expansion and encroachment upon the economy and workforce is a bad thing . . . .

Nonsense. Since I am not a toddler, I am capable of understanding that sometimes it can be a good thing, and sometimes it can be a bad thing.

How does one ever get out of the weight of government control under your ideology?

Ignoring all the other things wrong with your implied premises in this question, the whole point of Keynesian stimulus is that it is a matter of anti-cyclical timing: the plan is to phase out the stimulus as labor demand is otherwise returning.

It’s interesting that during the “Long Depression” productivity increased at a faster pace than deflation.

We were industrializing.

Not such a bad situation, unless . . .

You are unemployed and your children are starving. That is what you meant to say, right?

Any evidence?

Tons. There are many well-document histories of the effects of the 19th Century cyclical recessions.

The story of humanity since it’s birth includes untold amounts of suffering. There is no evidence to suggest that government intervention improved the lives of the poorest.

Again, because I am not a toddler, I am capable of understanding that “government intervention” is not necessarily good, and not necessarily bad. But it is a fact that the post-Great Depression economic era in the United States was much better than the pre-Great Depression economic era as far as economic stability is concerned, at least until very recently.

I would love to hear what you think about Hazlit’s critique of the general theory since you seem to know so much.

First, it is Hazlitt, with two Ts. Second, Hazlitt’s The Failure of the “New Economics” basically went through Keynes’s The General Theory line by line, so you will have to be more specific.

How about Mises’ Human Action?

Again, Human Action is a treatise. You’ll have to be more specific.

Paul Krugman (your economic messiah) . . . .

Nah, he’s just a guy.

Lower per capita GDP = poor and starving people with dead end lives. Only an idiot would disagree?

Right. Or, well, a person who understands the consequences of the distribution of income might realize this little equation is an oversimplification. But just them and idiots.

“People were dying in the streets!” as if there was a time in history when people magically suspended the inevitability of death.

People dying EVENTUALLY is inevitable. Any given instance of a person dying may not be. Again, because I am not a toddler, I understand this.

It is really entertaining to read the lengths people such as yourself will suspend understanding, simplifying situation as it suits you, then in the same breath over-complicating it so you may call anyone who rejects your analysis an idiot.

There are reasonable debates to be had in these areas. But starting off by ignoring history, then when that history is pointed out to you, waving it away with “Oh well, death is inevitable”, doesn’t count.

In other words, maybe not all Austrians are idiots–although at this point, any pure Austrian is just ignoring the many ways in which it has been falsified. But you specifically, Nathan, are certainly not contributing anything non-idiotic to these discussions.
Nathan Says:
July 12th, 2009 at 9:37 pm
Ahh yes the quotation game.

That is because it was caused by the end of wartime production and the return of the troops to the labor pool, and after a brief conversion period those factories and workers were able to be retasked.

If I didn’t know any better, I would think you briefly showed some understanding of the relationship between government and economies. And then you said this:

Ignoring all the other things wrong with your implied premises in this question, the whole point of Keynesian stimulus is that it is a matter of anti-cyclical timing: the plan is to phase out the stimulus as labor demand is otherwise returning.

If you could, briefly explain what causes the cyclic behavior? Is it Animal spirits? passion of the masses? Which Keynesian nonsense have you taken upon yourself to spout? And furthermore, how does business gain traction as government increases taxes to support their expanding programs? How do businesses hire as the government artifically raises wages through price controls and the biding away of employees to overpaid government jobs.

Hazlitt and Mises go into these problems in great detail, and use this understanding to propose solutions to prevent future crises, and limit their length and depth. It would be an important point to actually understand the cause of recessions before suggesting solutions. But you are too good for that, you are an adult! and are able to suspend reality and substitute it for what serves you.

You are unemployed and your children are starving. That is what you meant to say, right?

How were people starving? Food was cheaper and more plentiful. It just was? That seems to be your argument in a nutshell.

Or, well, a person who understands the consequences of the distribution of income might realize this little equation is an oversimplification.

You do realize that Krugman cites Texas having a lower ranking on average GDP relative to median GDP as another evidence for his disdain of the state. But hold on, Texas has a higher median ranking than mean, must invariably mean Texas has distributed it’s wealth much more evenly than New Jersey. Such an enlightened analysis has escaped our economic savior, I’m sure it was simply an oversight.

You post essentially boils down to this:

toddler
toddler
toddler
idiot

Fascinating. Anyone who thinks differently than me is a child or an idiot? A truly cogent response.

You have avoided absolutely every question on real economics and corrected my spelling of Hazlitt. Seems like a lot of effort for so little result. Does someone pay you to comment here?
DTM Says:
July 12th, 2009 at 11:17 pm
If you could, briefly explain what causes the cyclic behavior?

I can’t, actually. I don’t think there is a single simple explanation of business cycles.

And furthermore, how does business gain traction as government increases taxes to support their expanding programs?

You don’t have to tax at the same time you spend. You say you don’t want to be treated like a child, but stuff like this isn’t helping.

How do businesses hire as the government artifically raises wages through price controls and the biding away of employees to overpaid government jobs.

Again, you unwind the stimulus if and when private demand for labor increases. But you have a firm grasp on all this, right?

It would be an important point to actually understand the cause of recessions before suggesting solutions.

Again, there pretty clearly isn’t a single cause of all recessions. Moreover, sometimes in economics you have to accept treating the symptoms.

How were people starving?

I’m not sure why you have trouble understanding this: deflation doesn’t feed your family when you don’t have an income at all.

It just was? That seems to be your argument in a nutshell.

Again, the effects of the 19th Century recessions, including starvation in some cases, have been well-documented. Is it that you need book recommendations?

You do realize that Krugman . . . .

You do realize that I don’t care? I mean it: Krugman is just another economist to me, not some sort of personal guru.

Anyone who thinks differently than me is a child or an idiot?

No, anyone who thinks like a child is thinking like a child. Again, there are reasonable debates to be had about some of these issues. You aren’t managing that.

Does someone pay you to comment here?

Nope.
Nathan Says:
July 13th, 2009 at 12:59 am
I can’t, actually. I don’t think there is a single simple explanation of business cycles.

Which explanation comes the closest?

You don’t have to tax at the same time you spend.

Unfortunately this is a myth. The government can either print money or borrow it. Printing money is a tax through monetary dilution, and borrowing once again bids away capital that could be used for business. Not only this, but people know the government is borrowing and will make necessary adjustments by saving more. To say Ricardian equivalence is fact is somewhat misguided, but it is also the case that many individuals will save more than their share of future tax burden, and many will save less. In general people will in fact save some proportion of government spending and depress immediate consumption. Government must bid up interest rates to get loans, and this further encourages excessive levels of savings.

We have in effect hybridized this system, by giving away the right to print money to a private monopoly who loans it to the government at absurdly low rates, and it’s rich banking friends (does anyone really think the Fed’s purpose is to smooth the economy?). This system causes both effects and creates an eternal debt for every dollar in the monetary base.

Again, you unwind the stimulus if and when private demand for labor increases. But you have a firm grasp on all this, right?

As government destroys valid economic activity, unemployment continues to rise, inciting more government intervention. It’s an unrecoverable position, and requires disentanglement entirely to recover (as we have seen in all recoveries in history).

I’m not sure why you have trouble understanding this: deflation doesn’t feed your family when you don’t have an income at all.

Of course, if government basically forces companies to fire employees with minimum wages and other regulations, is the deflation really to blame? Deflation allowed people to survive on meager wages and single income families.

No, anyone who thinks like a child is thinking like a child.

Tautology, how quaint.
Nathan Says:
July 13th, 2009 at 1:09 am
Moreover, sometimes in economics you have to accept treating the symptoms.

Missed this gem. Bloodletting was used for hundreds of years for similar reasons.
DTM Says:
July 13th, 2009 at 9:18 am
Which explanation comes the closest?

What an odd question. I’d guess I’d just say in response that the Frisch-Slutsky stochastic shock theory is particularly helpful in that it specifically contemplates a multiplicity of possible causes (properly speaking, I think the shock process is probably more chaotic than stochastic, but that is just a quibble at this level of generality). That leaves the question of why following a particularly large negative shock (or particularly bad sequence of smaller negative shocks, or so on), it typically takes so long for the economy to recover fully. But properly understood, I don’t think that is a question that requires a single comprehensive answer: there is no real reason to expect equilibrium forces to respond quickly, and so the fact that they don’t typically respond quickly doesn’t necessarily require an overaching explanation. In other words, at that point you can just cite a grabbag of lag-producing factors–sticky prices and wages, slow and errant political processes, various multipliers and accelerators, and so on–to explain why stochastic (or chaotic) shocks lead to multi-year cycles.

[B]orrowing once again bids away capital that could be used for business.

And once again, you ignore how the timing is supposed to work. When businesses start looking for capital to invest again, you stop the cyclical borrowing.

As government destroys valid economic activity . . .

Nonsense. The bottomline is that a person sitting at home unvoluntarily unemployed is an ongoing waste of an economic resource, so the government putting that person to work doing something productive is creating, not destroying, economic value.

. . . unemployment continues to rise, inciting more government intervention.

Yeah. Except for the fact that unemployment actually fell in response to stimulus efforts during the Great Depression (see also Sweden during the Great Depression). When your theory fails to make sense of the real world, it is time to get a new theory.

Of course, if government basically forces companies to fire employees with minimum wages and other regulations . . . .

Try to focus. We are talking about the 19th Century recessions, such as the Panic of 1893. There were no minimum wage laws, and yet there were six years of double-digit unemployment. Again, when your theory fails to make sense of the real world, it is time to get a new theory.

Deflation allowed people to survive on meager wages and single income families.

Now think about what happens to no-income families.

Again, the bottomline is you are just flat out denying the reality of what happened in the 19th Century recessions (I repeat my offer of book recommendations if you would actually like to learn something). And if you are willing to persistently deny reality because it is inconvenient for your ideology, you deserve to be mocked as an intellectual child.
DTM Says:
July 13th, 2009 at 9:30 am
Bloodletting was used for hundreds of years for similar reasons.

This analogy makes no sense.

The proper medical analogy would be something like taking fever-reducing measures in a case of high fever (aka hyperpyrexia), regardless of the cause of the hyperpyrexia (which may be unknown).

You, on the other hand, are playing the role of the quacks who look at the potentially beneficial effects of low fevers in otherwise healthy people and then conclude that even high fevers are necessarily beneficial, thereby ignoring the preventable cases of brain damage and death due to hyperpyrexia.
Sycophant of the Bourgeois Says:
July 13th, 2009 at 11:18 am
What an odd question. I’d guess I’d just say in response that the Frisch-Slutsky stochastic shock theory is particularly helpful in that it specifically contemplates a multiplicity of possible causes (properly speaking, I think the shock process is probably more chaotic than stochastic, but that is just a quibble at this level of generality). That leaves the question of why following a particularly large negative shock (or particularly bad sequence of smaller negative shocks, or so on), it typically takes so long for the economy to recover fully. But properly understood, I don’t think that is a question that requires a single comprehensive answer: there is no real reason to expect equilibrium forces to respond quickly, and so the fact that they don’t typically respond quickly doesn’t necessarily require an overaching explanation. In other words, at that point you can just cite a grabbag of lag-producing factors–sticky prices and wages, slow and errant political processes, various multipliers and accelerators, and so on–to explain why stochastic (or chaotic) shocks lead to multi-year cycles.

So the economy is a series of random events, uncontrollable by an level economic calculation by individual actors? This is essentially religion as applied to economics. It doesn’t provide us with a single path to take to prevent or fix such “shocks.” Quite similar to Keynes’ “animal spirits.”

Of course this is all an exercise in absurdity. There are causes of economics shocks, and we can identify them in most cases.

And once again, you ignore how the timing is supposed to work. When businesses start looking for capital to invest again, you stop the cyclical borrowing.

The economy does not stop during a downturn. Small parts of it are affected. There is still demand for loans, capital, and other resources at all times.

Nonsense. The bottomline is that a person sitting at home unvoluntarily unemployed is an ongoing waste of an economic resource, so the government putting that person to work doing something productive is creating, not destroying, economic value.

So that’s all people are, an economic resource for the government to massage into their predefined place? Interesting world view.

Yeah. Except for the fact that unemployment actually fell in response to stimulus efforts during the Great Depression (see also Sweden during the Great Depression). When your theory fails to make sense of the real world, it is time to get a new theory.

I think you meant to say “despite stimulus efforts.” We have clearly shown economies recover rapidly without government interventions. For an economy to drag for 15 years after such outrageous spending and deficits doesn’t provide much evidence for the success of the theory.

Try to focus. We are talking about the 19th Century recessions, such as the Panic of 1893. There were no minimum wage laws, and yet there were six years of double-digit unemployment. Again, when your theory fails to make sense of the real world, it is time to get a new theory.

And government intervention caused 10 years of double digit unemployment during the Great Depression. See what I did there? Rapid industrialization is much better trade off than wasteful low paying jobs that just barely provide subsistence. We all benefit greatly from the market reorganization of resources. We reach a higher Pareto optimum in such reorganization. The wealth of society today is testament to the effectiveness of these reorganizations.

Now think about what happens to no-income families.

Once again. What happens when they have no job for more than 10 years? That’s what your policies have produced.

Again, the bottomline is you are just flat out denying the reality of what happened in the 19th Century recessions (I repeat my offer of book recommendations if you would actually like to learn something). And if you are willing to persistently deny reality because it is inconvenient for your ideology, you deserve to be mocked as an intellectual child.

I would love to read any books you recommend. I am at a loss to understand how someone could have such a confused world view.

This analogy makes no sense.

The proper medical analogy would be something like taking fever-reducing measures in a case of high fever (aka hyperpyrexia), regardless of the cause of the hyperpyrexia (which may be unknown).

You, on the other hand, are playing the role of the quacks who look at the potentially beneficial effects of low fevers in otherwise healthy people and then conclude that even high fevers are necessarily beneficial, thereby ignoring the preventable cases of brain damage and death due to hyperpyrexia.

So using the previous bloodletting of a patient as evidence for the need of more bloodletting is in no way analogous to governments causing economic shocks and increasing interference to treat them? Maybe it was just a little too complex for you to understand, and that would make sense coming from someone who can do nothing but call others children.

Matt Yglesias

No New Thing Under the Sun

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