Theory of Capitalism collapses

[_MadMonk]

The optimal tax rate I cited refers to the total tax revenue as a percentage of GDP. This is different from the top marginal rate, which is what the 91% figure refers to. The studies I had in mind do not comment on progressive vs. flat tax schedules, though they do find a weakly negative effect of economic inequality on growth.

Do you have any access to figures showing tax revenue vs. GDP for the past seventy years, or so? It would be illuminating to see them. Having read your posts, I suspect that the prosperity I remember in the sixties and seventies resulted from total revenues' being in the right range, even though the top marginal rate was so high, but I have no way to verify my hypothesis.

I also have a hypothesis that such a confiscatory top marginal rate made re-investing in the business more attractive than paying the top executives higher salaries, but again, I have no way of verifying this.

MadMonk

[_CaliforniaKid]

This chart is pretty useful:

http://books.google.com/books?id=oRgQ2g ... &q&f=false

Here's a time series for federal taxes:

http://www.taxpolicycenter.org/taxfacts ... ?Docid=205

[_CaliforniaKid]

Another factor that may have made the '50s and '60s a relatively high-growth period compared to the present is that a larger percentage of government spending then was spent "productively". "Productive" expenditures include expenditures on education, public health, public works, etc. Up to a certain point, taxes for "productive" government expenditures provide more of a boost to the economy than if those funds had remained privatized. Taxes for non-productive expenditures such as social security, by contrast, have a negative effect on growth. So as entitlements consume more and more of federal tax revenue, that revenue will become less and less productive. We'll either have to raise taxes or cut entitlements to maintain an optimal level of "productive" government spending.

[_MadMonk]

Another factor that may have made the '50s and '60s a relatively high-growth period compared to the present is that a larger percentage of government spending then was spent "productively". "Productive" expenditures include expenditures on education, public health, public works, etc. Up to a certain point, taxes for "productive" government expenditures provide more of a boost to the economy than if those funds had remained privatized. Taxes for non-productive expenditures such as social security, by contrast, have a negative effect on growth. So as entitlements consume more and more of federal tax revenue, that revenue will become less and less productive. We'll either have to raise taxes or cut entitlements to maintain an optimal level of "productive" government spending.

Good point. One aspect of Social Security that is not often considered is the increase in longevity resulting from improvements in medical care. It was Kaiser Wilhelm of Prussia who picked the age of 65 at which to begin paying a state pension, because so few workers of that era actually reached that age. It was a way of granting a benefit that cost very little. Today, with workers routinely living into their eighties and nineties, it is certainly time to increase the starting age for payments. Myself, I'd be perfectly fine with raising the retirement age to 70. (Although we might wish to keep 65 for those who do physical labor, since the body does tend to give out at a certain point.)

Thanks for the references in your previous post. I look forward to checking them out. But not tonight; it's bedtime.

MadMonk

[_Markk]

Another factor that may have made the '50s and '60s a relatively high-growth period compared to the present is that a larger percentage of government spending then was spent "productively". "Productive" expenditures include expenditures on education, public health, public works, etc. Up to a certain point, taxes for "productive" government expenditures provide more of a boost to the economy than if those funds had remained privatized. Taxes for non-productive expenditures such as social security, by contrast, have a negative effect on growth. So as entitlements consume more and more of federal tax revenue, that revenue will become less and less productive. We'll either have to raise taxes or cut entitlements to maintain an optimal level of "productive" government spending.

Maybe you guys have touched on this, but you have to factor WW2 into the mix, it is really the sole reason for the boom. Hundreds of thousands of GI's coming home needed cars, house's...etc. The cold war and the race for space keep things going in all the defense type factories that started out of need because of the war. The nuclear age was blooming. Technologies like TV were moving forward...all primarily from a US base. We were also rebuilding parts of Europe,Japan, and other countries. This is know as the Golden Age of Capitalism and lasted until poor ole Jimmy Carter.

Just think that half the world was in ruble, and the US was by far the leader in rebuilding the world, and we rightly made bank doing so in that we funded the majority of the war with raw material and factories, and our lend lease programs... Stalin wrote something to this effect speaking of the payment of war...The USA paid with money, the United Kingdom paid with power, and the Soviet Union paid with blood...it is staggering when you think about it.

[_CaliforniaKid]

Mark,

Yes, that's true. There's a phenomenon known as the "phoenix effect," where countries tend to go into overdrive after a devastating war, and end up returning to their pre-war economic trajectory within twenty years. In part this is due to a post-war "baby boom". People seem to have a psychological need to replace lost loved ones by having lots of kids, so in the long run you actually end up with a bigger population than if there had never been a war at all.

The phoenix effect is why Europe was able to suffer such heavy losses in World War I, only to repeat the same conflict a few decades later.

I'd add the GI Bill as another major factor. In terms of returns, universal education is pretty much the single best investment any government can make. It not only enhances growth, but also reduces income inequality. The GI Bill made the US a leader in technology while helping to maintain a sizable middle class.

Peace,

-Chris

[_CaliforniaKid]

One aspect of Social Security that is not often considered is the increase in longevity resulting from improvements in medical care. It was Kaiser Wilhelm of Prussia who picked the age of 65 at which to begin paying a state pension, because so few workers of that era actually reached that age. It was a way of granting a benefit that cost very little. Today, with workers routinely living into their eighties and nineties, it is certainly time to increase the starting age for payments. Myself, I'd be perfectly fine with raising the retirement age to 70. (Although we might wish to keep 65 for those who do physical labor, since the body does tend to give out at a certain point.)

Right. Probably the best thing we could do to resolve the social security crisis is to peg the retirement age to life expectancy-- or even to make retirement entirely conditional on disability. We should also be investing heavily in research on maintaining brain plasticity, in order to keep our elderly folk from going so senile that they cease to be productive.

[_Markk]

Mark,

Yes, that's true. There's a phenomenon known as the "phoenix effect," where countries tend to go into overdrive after a devastating war, and end up returning to their pre-war economic trajectory within twenty years. In part this is due to a post-war "baby boom". People seem to have a psychological need to replace lost loved ones by having lots of kids, so in the long run you actually end up with a bigger population than if there had never been a war at all.

The phoenix effect is why Europe was able to suffer such heavy losses in World War I, only to repeat the same conflict a few decades later.

I'd add the GI Bill as another major factor. In terms of returns, universal education is pretty much the single best investment any government can make. It not only enhances growth, but also reduces income inequality. The GI Bill made the US a leader in technology while helping to maintain a sizable middle class.

Peace,

-Chris

I'll check out the phoenix effect. I also like the GI bill, my dad (ww2)and one of by brothers (VN) benefited from it, and i know allot of VN vets that pissed it away, but I also believe they earned that right to do so. But being in construction I believe the biggest reason for growth was building, but I suppose building is growth in and of it's self. My own indicator of good times is when you have to wait in line at Home Depot at 6:30 AM on a week day. LOL...that may seem simple and lame, but I swear after 30 years in construction it has never failed.

Thanks
MG

[_Fifth Columnist]

You clearly haven't been paying attention to recent political thread where this was shown to be Right Wing myth.

What is your response to Christy Romer's study that I linked to above? What mistakes did she make? By the way, she is no Right Winger. Here is the link again. http://www.econ.berkeley.edu/~dromer/pa ... ne2010.pdf

http://mormondiscussions.com/phpBB3/viewtopic.php?f=5&t=16030
viewtopic.php?f=1&t=16140
viewtopic.php?f=5&t=16170

I ignore Droopy related threads so yes I was not paying attention.

[_Fifth Columnist]

Regardless, when I wrote what I did above, I was thinking of exactly the sentiment you expressed.

The sentiment I expressed was that government and corporations both have specific strengths and shortcomings, so we have structured the system in such a way that the strengths of each make up for the shortcomings of the other.

For example, statistical studies of pollution show that pollution is lowest in economies with well-regulated private enterprise. State-owned enterprises pollute because they are inefficient, and unregulated private enterprises pollute because cleanup is expensive. When private enterprises are regulated, however, pollution levels quickly subside.

If you're going to disagree with my position, please represent it accurately rather than engaging in gross caricatures.

Is the following a gross caricature of your position?

Unlike profiteering corporations with no accountability to the public, democratic governments cut fewer corners and are more careful to avoid abusing and exploiting people.

That sure sounds like corporations are full of bad and government is full of good. Now that you have clarified what you meant, I actually agree with most of it.

I feel that I should note that my original comment about corporations being evil and government being good was not directed at you. It was only upon rereading your comments, that I saw it may be applicable.

As I've already stated, corporations are much more accountable to consumers than the government is to its constituents.

Accountability to consumers is insufficient to restrain corporations from engaging in anti-competitive practices or causing considerable damage to public health. It's also insufficient to ensure equal opportunity and availability of basic services to the entire population. That's why it's necessary to have a regulatory agency with broad powers and broad public accountability.

I agree in principle with preventing "anti-competitive practices," but what I view as anti-competitive practices seems to be very different than what liberals view as anti-competitive practices. For example, many liberals view extreme efficiency as an anti-competitive practice because it causes small mom & pop businesses to go out of business. They can't compete with the larger more efficient companies. The prime example of this is probably Wal-Mart. Wal-Mart has succeeded because it has competed and won and continues to win. This is not anti-competitive, but liberals seem to view it that way.

If by "anti-competitive" you mean exerting market power to extract monopoly profits from consumers, then I agree with you. I think another very "anti-competitive practice" is lobbying the government to implement regulations, pass laws, etc. that create large barriers to entry or unduly subsidize the firms products (GE is one of the worst offenders for doing this). The regulations and laws are always done for our benefit in some way, but really just end up entrenching the existing players and stifling competition.