Friday, January 29, 2016

SF Fed Report: Min Wage Increases Ineffective vs. Poverty

I'm not a huge fan of the minimum wage, but I also admit it isn't going away. It's a feel-good public policy that some nations embrace with complex brackets (Australia indexes for age of worker) and others simply don't have at all. There's little economic correlation between the minimum wage and job creation, because the wage tends to trail earned wages in skilled trades.

Which nations don't have legal minimum wages? How about Denmark, Iceland, Norway, Sweden, and Switzerland! Germany has regional minimums, handled by local governments, just as many states in the United States set their own minimums.

How can it be that social democracies don't have minimum wages? They have a history of employee ownership, through unions with board seats at companies. The United States lacks a similar history of corporate-union or even government-union cooperation. Our unions are more adversarial. (Maybe they should try another approach; it might increase wages and influence.)

The Federal Reserve Bank of San Francisco studied the minimum wage (yet another minimum wage study) and found it has negligible effects on poverty or employment. Basically, increasing the wage costs some job creation and helps the working children of middle-class and upper-middle-class families earn some extra cash. That's not a bad thing for college students, but not a great thing for unskilled people in poverty… many of whom don't have jobs!
Hiking minimum wage won't stop poverty: Fed paper
Jeff Cox
Wednesday, 30 Dec 2015 | 1:47 PM ET

David Neumark, visiting scholar at the San Francisco Fed, contends that raising the minimum wage has only limited benefits in the war against poverty, due in part because relatively few of those falling below the poverty line actually receive the wage.

Many of the benefits from raising the wage, a move already undertaken by multiple governments around the country as well as some big-name companies, tend to go to higher-income families….
It seems counter-intuitive, but I've written about his before. Minimum wage tends to be temporary and most of its earners are the high school and college-aged children of middle-class parents. Yes, there are single parents earning minimum wage in fast food jobs, but they are statistical outliers, not the norm.

Thinking back, when I was in high school almost everyone had a retail or food industry job. In college, we were the shift-managers and lead clerks. I worked at K-Mart, for example, and earned a raise every summer. I earned minimum wage for only six months. Though anecdotal, my experience reflects the statistical evidence.

The children of the middle class are able to get to and from jobs. They have some skills and want to build their resumes. Basically, entry-level workers are headed for better jobs.
Demographically, about half of the 3 million or so workers receiving the minimum are 16 to 24 years old, with the highest concentration in the leisure and hospitality industry, according to the Bureau of Labor Statistics. Moreover, the percentage of workers at or below the minimum is on the decline, falling to 3.9 percent in 2014 from the most recent high of 6 percent in 2010.
What about the poor? Believe it or not, 57 percent of families living in poverty don't have a single wage earner. That's astonishing to some people, but the fact is that the poor don't work (at least not for legal wages). That's a serious problem because if they don't work minimum wage jobs, they'll never develop the skills for higher paying jobs.
Neumark also points out that many of those receiving the wage aren't poor — there are no workers in 57 percent of families below the poverty line, while 46 percent of poor workers are getting paid more than $10.10 an hour, and 36 percent are making more than $12 an hour, he said.
The unemployed poor is a global problem, especially in some European nations and the United States. We have a lot of poor without the skills to hold minimum wage jobs. Even the lowest paying jobs require more and more skills as technology advances.

If we want to address poverty, we're back to education and personal responsibility. Other nations have extensive safety nets, yet they still have this same problem. Poverty becomes a cycle, as families don't develop successful habits. How do we teach the skills necessary for self-advancement? That's going to be an increasingly important question this century.

Some of my visitors have suggested in comments that the German wage and employment model would solve many other problems, not just wealth inequality. The problem is, there's no evidence that free education or employee-owned companies have decreased inequality in Germany. Nor have these policies led to better corporate citizens.

In Germany, Volkswagen has employee and regional board members. This model, widely adopted, provides leverage to negotiate higher salaries. VW is also evidence that employee and government board seats don't equal ideal corporate behavior, despite government and union ownership stakes.

The evidence is cloudy, though there's just nothing to suggest increasing wages through mandates or other means (stronger unions) will have an effect on poverty or inequality.

My fear is that wages will be increased nationally based on high-cost states and urban areas. I doubt that will happen, though, because most people do realize $15 in rural Pennsylvania or Alabama isn't the same as $15 in New York City.

More costly employees have to be worth the expense to any business. As a result, companies might avoid hiring the very people a higher wage was meant to help. Instead of hiring an inexperienced worker, I might higher a retiree or a college student. As higher-wage employers know, you get better employees for the money. That's not a bad thing.

One solution is not a higher starting minimum wage, but a bracket approach with guaranteed raises after six months and one year. This would encourage people to stay at jobs and encourage employers to invest in their workers. I dislike the idea of mandating this approach, nationally, but it might be a good compromise.

Friday, January 22, 2016

The ‘Hollowing’ of the Middle Class

The narrative is set, and as a rhetorician, I appreciate the value of a good story in shaping public debate.

The rich are getting richer, the poor are getting poorer, and many of the middle class are being pushed down into the lower-class. It's a sad story, a compelling story, and in some important ways it is a fiction.

Yes, the middle class is shrinking. That should concern us. But what if the shrinking middle class is as much a result of people moving into the upper class as it is a result of others moving down the social ladder? In fact, some research shows there are more people moving from the middle into the upper income brackets, leaving a smaller middle class — but not for the reasons being promoted by the media and politicians.

Exceptions in the media coverage exist, as they do in little tiny dimly lit sections of academia. Readers know I enjoy Robert Samuelson because he digs deeper into statistics than other newspaper columnists.
The 'hollowing' of the middle class?
Despite the top 1 percent's outsize incomes, most still see an upward march of living standards.

http://wapo.st/22Gfo51
By Robert J. Samuelson
January 3 at 8:04 PM ET

We'll be hearing a lot about the middle class in the coming months. That's one sure bet for 2016, as both parties compete for votes. What's less sure is whether we'll get an accurate assessment of the middle class's condition. By now, the conventional wisdom is familiar: The top 1 percent has skimmed most income gains for itself, producing decades of stagnant living standards for most Americans. Wall Street has slaughtered Main Street.
Data from the Pew Research Center raises questions about the popular narrative. It challenges assumptions about why the middle class is shrinking and where its former members have gone.
Now comes a report from the Pew Research Center that paints a more complex picture. It's not that the Pew study contradicts all the conventional wisdom. It finds (as have others) that economic inequality is increasing.

In 1971, about 61 percent of adults lived in middle-income households (defined as three-person households with incomes from $41,869 to $125,608 in today's dollars). By 2014, that share had dropped to 50 percent. Meanwhile, the share of low-income households (households with incomes of $41,868 or less) grew from 25 percent to 29 percent, and the share of upper-income households (incomes above $125,608) increased from 14 percent to 21 percent.
Read the above carefully. There was a 4 percent increase in the low-income concentration, but a 7 percent increase in the upper-income households. In other words, nearly twice as many people left the middle class by moving upwards as left the middle on their way to the lower-income set.

This isn't great news, but it shows that what is really happening is that the middle is being redistributed in two directions. My wife and I went from the middle to the upper over the last ten years. Like many of our peers, we are two college-educated professionals with graduate degrees and technical skills. Households like ours (married, two-incomes, highly-educated) moved up the income distribution graph.

Meanwhile, our friends without college degrees, especially our single friends without specialized skills, slid backwards quickly during the last decade. The period from 2005 to 2015 was a lousy time to be on the wrong side of the skills divide. It's particularly difficult for single parents to obtain the credentials to advance economically, for a variety of reasons. There are always exceptions, but statistics indicate single parents without college degrees were among the most displaced formerly middle-class households.

However, if you managed to stay in the middle class during the last ten years, your quality of life and your income probably improved.

The Pew Research Center's findings include this:
The news regarding the American middle class is not all bad. Although the middle class has not kept pace with upper-income households, its median income, adjusted for household size, has risen over the long haul, increasing 34% since 1970. That is not as strong as the 47% increase in income for upper-income households, though it is greater than the 28% increase among lower-income households.

http://www.pewsocialtrends.org/2015/12/09/the-american-middle-class-is-losing-ground/and see http://www.pewresearch.org/topics/income-inequality/pages/2/
You wouldn't know it from media coverage, but middle-class household incomes actually increased by a third since the 1970s. That is adjusted for household size and inflation.

Samuelson believes this might be a positive sign for the future. The Great Recision might be an anomaly, favoring the most educated in our economy. Things might return to historical norms, if we're lucky. Personally, I disagree with this optimism because automation and algorithms are likely to disrupt the economy much more in coming years. Still, it would be nice if everyone advanced more evenly in the future.

Samuelson offers his own prescription for the future:
We need a prudent agenda — not a vendetta against the rich or the poor but a purging of policies that abet inequality with few offsetting benefits. Tax breaks that favor the rich, starting with the infamous "carried interest" subsidy, should be abolished. Limits on unskilled immigrants, who inflate the ranks of the poor, should be enacted as part of comprehensive immigration legislation. Half of Hispanic immigrants have low incomes, Pew says.
I disagree on principle with limits on movement between nations. We attract workers to the United States because we do have a vibrant economy and culture. Closing our borders won't fix inequality or address concerns about related social disparities.

Still, I agree that we need a saner, more equitable tax system without the absurd deductions and exceptions that benefit the upper-middle and upper-class households. (At the same time, as I have repeatedly posted, we are stuck with an income tax. That's just the way the Constitution is.)

Education remains key, along with stable households. Until we address the skills gap, we cannot address other forms of inequality of opportunity. And, offering more equitable opportunity isn't going to produce equal results because people will never achieve equally — for many reasons.

Friday, January 15, 2016

90% Tax Rate vs. Effective Rates

This campaign season in the United States is already producing some meme myths on social media. One I keep seeing is the "90% tax rate" myth. Often, the responses prove people don't understand the marginal rate system of the U.S. income tax. Another meme that does reflect marginal rates claims there was a 70 percent effective tax rate. That's not quite reality, either, though. (It is, and it isn't, as I'll try to explain.)

The most popular blog posts on Almost Classical remains The 90% Tax Rate Myth, in which I explain effective rates vs. top marginal rates and the relative stability of top rates excluding outliers of less than 10 tax filers. That’s necessary because some of the “top tax rates” would have applied to… ONE PERSON.

As I wrote in that old post:
As a result of deductions and exclusions, even the theoretical maximum Real Rate of taxation at 60% in 1944 overstates taxation dramatically. The reality? On earned income, the richest U.S. taxpayers paid close to 40 percent of their earned incomes in taxes in 1944. We simply didn’t count much of the compensation as taxable income. 
“The rich” don’t earn money via income. They earn money through capital gains on investments and through tax-free instruments like municipal bonds. If you invest millions in tax-free bonds, financing government projects, you shelter all that income from taxes. And the wealthy do just that.

Until 1968 the top capital gains tax rate was 25 percent. Think about that. If you had no “income” but played the market, your tax rate in this mythical time of high taxes was 25 percent, not 90, 70, 50, or even 40 percent.

From 1942 until 1954, you could exclude half your gains form taxes, if you held stocks or bonds for more than six months. At that time, day trading wasn’t done and the average stock was held for nearly seven years. That means most stock owners (the wealthy) exempted huge portions of capital gains from taxes.

Also, remember that gains are taxed only when stocks are sold. When capital gain rates are higher, people simply hold their stocks until rates fall again. This was a lesson learned when rates were raised in the 1970s. A wave of capital gains were realized in the 1980s, when the tax rate was lowered. (There were other issues in the 1970s, too, like a serious recession and a flat market that didn’t recover well into the 1980s.)

See the Tax Policy Center data sheets on capital gains taxes.
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=161

From 1958 until 1964, roughly 80 percent of federal income tax came from the 16 to 28 percent bracket. That has fallen, but rate shifts and changing brackets make it difficult to compare brackets over time.

From 1982 on, there hasn't been a 50 percent top bracket, for example, so those payers have been shifted to lower brackets. Even at their peak, the 50 percent bracket was never more than 8.3% of income tax collection, but recall that those individuals paid into all the lower marginal brackets, too.

The 1 to 15 percent bracket has held steady since 1987, when consolidation and changes to code pushed people from higher brackets into this lower bracket exclusively. Changes reduced the number of people paying across the brackets.

Since 1987, a median of 45 percent (and mean slightly higher) of taxes have been paid at the lower bracket. However, that has fluctuated wildly. The upper bracket(s) (25 and above) have increased from 7 percent of tax revenues to roughly a quarter.

Now, remember that the wealthy, men like J. P. Morgan, loaned (and still loan) local, state, and federal government massive sums through the purchase of bonds. That means that if you diversify investments and include bonds in the mix, your effective capital gains tax rate can be reduced significantly.

Wealthy people don’t receive paychecks for the majority of their wealth accumulation. Their wealth accumulates as stock, bonds, and property holdings. That all reduces their tax liability. While the average person cashes a check and pays off portions of debt, the wealthy get wealthier with “no income” (like Steve Job earning $1 at Apple).

This is all complicated by the 16th Amendment to the U.S. Constitution that lays out an income tax. That’s what we have at the national level, excluding tariffs and fees. We can’t tax wealth, as is done elsewhere. At the state and local levels, some amount of wealth is taxed through property taxes.

The analyses of several respected economists have debunked the 70 percent claim, which makes the rounds on various media sites. The IRS calculated a theoretical max of 70 percent for a single filer that year (seriously) and later research found that the highest effective rate was 49 percent -- significantly less than the 70 percent number you are citing.

From Bloomberg:
1950s Tax Fantasy

JAN 2, 2013 6:45 PM EST
By Amity Shlaes 
The Internal Revenue Service reckoned that the effective rate of tax in 1954 for top earners was actually 70 percent.
Or lower.
Marc Linder, a law professor at the University of Iowa, has shown that a more comprehensive interpretation of income that includes capital gains suggests the real effective tax rate for millionaires was 49 percent in 1953. The effective rate dropped throughout the decade, reaching 31 percent by 1960.
But, the Internet will continue to trade in the idea that there was a 90 percent tax rate or at least a 70 percent effective rate in some mythical time of the past. One mis-calculated IRS finding, based on excluding capital gains from the equation is not the reality of the 1940s or 50s tax system.

Thursday, January 14, 2016

Podcast Interview on iTunes

William Campbell was kind enough to include an interview with me in his podcast series, Challenging Opinions. To learn more about the series, visit:

https://itunes.apple.com/us/podcast/challenging-opinions/id1033974650?mt=2

Friday, January 8, 2016

Simplification isn't Helpful in Econ Discussions

Economics is not a simple discipline to understand. Yet, all around us are people claiming that complex economic matters can be as clear as "Econ 101" when debating public policy. Sorry, but Econ 101 doesn't answer anything and the rhetorical shorthand does the discipline (and policy debates) a disservice.

When you take an introductory class in any topic, from physics to programming, the concepts are necessarily simplified. It is like teaching a child to read. You start with phonics in English and tell the child that letters make sounds. Oops. But it isn't really that simple, is it? Phonetic rules change and words in English have complex etymologies. Rules you learn as a new reader quickly vanish or have to be understood as a small part of a complex flowchart.

Economic principles like "supply and demand" or "externalities" seem simple enough in the language and models of Econ 101. And then you head into the bushes and discover there are more "ifs" and "howevers" involved than you originally understood. Yes, higher taxes can dissuade consumption and production, but not always. Situations are contextual to cultures and times and models have to be adjusted. What seems like a high tax rate in one situation (recession, high unemployment) might be a low tax rate in another (peace, strong growth, tight labor market).

Tim Worstall wrote about this in November 2015. Critiquing "Econ 101" without understanding Econ 101 is a strawman argument, and probably several other fallacies all rolled together.
NOV 25, 2015 @ 06:59 AM
To Prove Econ 101 Is Wrong You Do Need To Understand Econ 101
Tim Worstall

http://www.forbes.com/sites/timworstall/2015/11/25/to-prove-econ-101-is-wrong-you-do-need-to-understand-econ-101/
It's entirely true that Econ 101 is not the end of the subject. That there's an awful lot of caveats that we would want to apply to the rather simplistic conclusions of the average introductory economics class. But then that's what Terry Pratchett pointed out education was: lies to children to help them make some sense of the world. When they become older, more capable of nuance, then we point this out to them: those previous stories were gross simplifications and now you need to know the caveats.
As we prepare to elect a president in the United States, complex economics will be presented as simple Facebook memes. Examples out of context will be used to generalize about the nation.

"Minnesota raised taxes and it's growing!" "Texas has reduced regulation and costs to businesses, and it's growing!" Both can be true, and both ignore the contexts of those states. Minnesota is ranked as one of the best places to live (overall) and one of the worst places to be a low-income person of color. Generalizations ignore ugly outliers. Economists and sociologists have found that in developed economies ("Western" nations) the lower the diversity in a place, the higher the "quality of life" for some reason. Utah and Minnesota feature statistical paradises with above average schools in homogenous neighborhoods. So what? What does that tell us about taxes and spending? Maybe that we're willing to live with higher costs the more alike we are. But that doesn't really answer the taxes vs. quality of life question overall.

Coming out of the recession, energy states boomed with high wages and new construction. As energy prices fall, those same states might suffer. State-level policies might have had little to do with the energy boom (and bust). Texas and North Dakota might have boomed, but did their elected officials control OPEC and North Sea oil production? No. They benefited from global events by sheer luck.

Econ 101 offers generalizations before taking more advanced courses and learning that models are complex. The GDP model for the United States is contained in 98 pages of documentation. That's not Econ 101. The models the Federal Reserve uses to debate interest rates are not Econ 101, either.

Expect "Econ 101" arguments about taxes, wages, regulation, immigration, and dozens of other topics. Expect this arguments to be misleading oversimplifications, too. Econ 101 isn't about reality. It is about teaching basic concepts that are later challenged and expanded in other courses.

The political winds in the U.S. are shifting, and we are possibly entering another "progressive" era for a decade or more (on domestic social issues). Then, when things happen and models break, national politics will swing back to the center-right (not that we ever go to the far left). "Econ 101" will be quoted in both directions, as we oscillate about the center. When a new war on poverty, war on crime, war on whatever doesn't work, Econ 101 will be cited, incorrectly.

Reality isn't a simple model. A colleague once told me that teaching Econ 101 is like telling physics students that e=mc^2 is more complex than it seems. Everybody in the lecture hall nods, but they still leave the class thinking e=mc^2 is simple, elegant, and captures everything you need to know about energy and mass.

I'm not a physicist, but I can appreciate how hard it must be to say that all those models in Newtonian physics are misleading. And Einstein's simple equation describing the relationship between energy and mass isn't that simple, either.

Politics (and journalism) don't lend themselves to twenty-page explorations of economics. That's a shame. Bumper stickers, memes, and misleading graphs will shape this election as similar simplifications have shaped past elections.

Friday, January 1, 2016

High Taxes = Wealthy Communities

One of the paradoxes progressives use to challenge libertarian ideals and conservative tax policies is that the wealthiest communities and cities have some of the highest local tax rates in the nation. Cities like New York and San Francisco are obvious examples, as are the suburban areas around Chicago, Los Angeles, and Washington, D.C. (also known for its concentration of Super Zips).

High local taxes usually correspond to school spending, which is funded in most states through property taxes. Local schools are almost private academies in many states and counties, particularly in areas without a history of private schools.

My wife and I are an example of this high-tax and wealth paradox, made worse by the natural sorting that occurs among classes. And, because wealth is generationally transmitted through culture, education, and property, this also contributes to racial sorting in most nations (as seen by studies of "egalitarian" Europe).

We live in a single-entrance, cul-de-sac neighborhood without a single connected loop. You have to turn around at a dead end to return to the entrance. It's a neighborhood of larger homes, and generous lots, in a "township" (a small subsection of a borough) with its own police, fire, and exclusive schools. The local county park has a gun range, two equestrian arenas, ice-rink, year-round tennis, and much more.

A third of our neighbors, maybe more, work for the schools, police, fire, hospitals, and so on. We are willing to pay higher taxes the same way we also pay a homeowners' association fee (which I still detest on principle, since the community provides most services). The taxes and fees we pay ensure the area maintains its high quality of life.

That high quality of life increases property values, making our neighborhood yet more exclusive. Our self-imposed taxes, therefore, support the things that maintain the "wealth" in our houses. Our wealth and our taxes are intertwined, because schools, parks, and public services make our township desirable.

This happens on the county city, county, and even the state level. Minnesota is a prime example of this on the large scale, like the Scandinavian countries from which many of its residents trace their roots.

Yet, Minnesota is also rated as one of the worst places to be low-income and, by no coincidence, African-American. The wealthy have segregated into beautiful urban neighborhoods in the Twin Cities, while North Minneapolis and parts of St. Paul are allowed to deteriorate. High taxes at the state level go to the parks, museums, and other cultural quality-of-life items.

When my wife and I lived in Minnesota, we enjoyed the parks, the museums, and the state arboretum. These are not the things residents of North Minneapolis enjoyed.

Living in a bubble, it is easy to forget that "higher taxes" that directly benefit you and protect your wealth, are a struggle for much of the middle class. The poor and lower-middle class cannot increase their own taxes enough to revive their failing schools. They cannot magically create beautiful parks with tree-lined trails and ice rinks.

Increasing taxes or wages seems like a no-brainer when you're a progressive in a wealthy community. But those taxes and wages might not work in a disadvantaged community.

Now, some will point out this is why we need federal programs. But, we forget that most tax and spending decisions affecting daily life are at the state and local levels. For a classical liberal like myself, that's generally a good thing. I want more say over how my community operates. But, this also reinforces a problem and continues inequality.

My solution is to decouple the key to wealth from local taxes: education. Education funding should be equalized as much as possible, so schools in my community, with its full-slate of AP and honors offerings, are not unique to the wealthier suburbs. Education correlates to future success, but it is funded in a way that almost ensures generational lock, reducing income mobility.

Yet, Democrats and Republicans alike resist ways to equalize schools, championing "local control" and "local support" because both business leaders and teachers unions like this current model.

For now, wealth and taxes are a feedback loop in our communities. We tax ourselves, willingly, and sometimes seek to impose these high taxes on people unable to afford them.

For this reason, I do support state-level control of education funding. Not federal control, but state-level funding equalization and standards.

Friday, November 20, 2015

Government Supporters, Giving it Extra Credit

One of the tendencies among progressives, and among statist conservatives, is to give government far more credit for invention and creativity than it deserves. They point to projects funded or supported by government as evidence of the value of larger, centralized projects, but they forget you cannot prove a negative.

Because government is so intertwined in modern innovation and basic research, it is nearly impossible to prove what would be happening without government. People have forgotten that that big projects, like the Transcontinental Railroad, were actually boondoggles that catered to political cronyism, not genuine innovation. (There were better managed, more profitable railways that were crushed by the federalization led by the robber barons.)

The market, left to its own, might fill gaps. We simply will never know.

My thoughts on this are prompted by too many people claiming we need more and more and more federal spending, supported by higher taxes on the "rich" who clearly don't deserve their money. Of course, the math doesn't work, if you've ever bothered to watch "Eat the Rich" on YouTube:

https://www.youtube.com/watch?v=661pi6K-8WQ

Anyway, let's get into the concept that government is why we have great things. There is a role for government: maintaining order, protecting freedom, enforcing contracts, and protecting property rights. We cannot have stable economic growth and innovation without a trustworthy and fair government to act as something like a referee.

But, do we need government for the actual creative and innovative processes?
Tech's Enduring Great-Man Myth
The idea that particular individuals drive history has long been discredited. Yet it persists in the tech industry, obscuring some of the fundamental factors in innovation.

By Amanda Schaffer on August 4, 2015
http://www.technologyreview.com/review/539861/techs-enduring-great-man-myth/
Hero myths like the ones surrounding Musk and Jobs are damaging in other ways, too. If tech leaders are seen primarily as singular, lone achievers, it is easier for them to extract disproportionate wealth. It is also harder to get their companies to accept that they should return some of their profits to agencies like NASA and the National Science Foundation through higher taxes or simply less tax dodging.

And finally, technology hero worship tends to distort our visions of the future. Why should governments do the hard work of fixing and expanding California's mass transit system when Musk says we could zip people across the state at 760 miles per hour in a "hyperloop"? Is trying to colonize Mars, at a cost in the billions of dollars, actually the right direction for future space exploration and scientific research? We should be able to determine long-term technology priorities without giving excessive weight to the particular visions of a few tech celebrities.

Rather than placing tech leaders on a pedestal, we should put their successes in context, acknowledging the role of government not only as a supporter of basic science but as a partner for new ventures. Otherwise, it is all too easy to denigrate public-sector investment, eroding support for government agencies and training programs and ultimately putting future innovation at risk. As Mazzucato puts it, "It's precisely because we admire Musk and think his contributions are important that we need to get real about where his success actually comes from."
Much of the above article relies on the 2013 book The Entrepreneurial State: Debunking Public vs. Private Sector Myths by Mariana Mazzucato. The book implies, somewhat simplistically for an economist, that federal government spending has created our technology revolution. Prof. Mazzacato, of the University of Sussex, acts as a cheerleader for government, ignoring or glossing over the more complicated relationship between private invention and public investment in those inventions.

Federal spending can and does support refinement of inventions and basic discoveries. That's wonderful. Research labs do work that might not be profitable (like large particle accelerators smashing atoms) and may not have immediate market applications. But to credit government with too much is also problematic.

People forget that the National Information Infrastructure Act came about because government really did NOT see the value of the Internet. I was working on DARPA projects at USC and the Feds were convinced the networks were a toy at worst and a little better than physical mail at best.

The trope in this and other articles that things would have happened without a Jobs or Case or Serf ignores that there is a creative act in seeing how parts fit together. Jobs was a jerk, especially during the Next years (we were testers for Next). But, he said things we thought were nuts that proved to be true (Display PostScript, optical media, and so on).

And just because the government is a customer and offers contracts for something does not make it the only funding source. Yes, basic research is a function of our research institutes and universities, leading to great things, but take 3D rendering. Hollywood has actually spent more on computer imaging than the National Center for Supercomputing. So, private "frivolous" spending AND government spending overlap.

A side point, most of the "great things" mentioned in this article and elsewhere were the result of military spending, seeking better ways to kill and avoid being killed. Even our highway system was a "military" Cold War expense. Pretty sad, in some disturbing way. Orson Welles in "The Third Man" comes to mind and his speech on war as the mother of invention.

Private people, the Wright Brothers, and others invented the powered airplane. Government, during the Spanish American and WWI, realized these airplane things could be used to spy on and maybe kill other armies. Pershing in 1916 convinced the U.S. government to suspend the Wright patents (see the new book on the Wright Brothers), which they had been defending from competitors (a bit foolishly, as eventually their company and the competition would merge).

Lots and lots of money was spent "improving" airplanes to kill better. Guns, bombs, sights (telescopes), gear chains, and other technologies that ALREADY existed, were combined by government contractors (here, Germany, elsewhere) to create fantastic flying killing machines.

The "government" is given credit for these innovations, which government did fund… for better or worse. Meanwhile, what opportunities were lost in civilian application? We don't know. Can't prove a negative.

Computers...

Already existed. Government wanted faster ways to calculate trajectories and targeting data. Government invested in ALREADY EXISTING technology to improve it for the purpose of… killing more people! Yeah! And, we now give government credit for innovations that BUILT ON existing technologies created to calculate financial transactions (National Cash Register, International Business Machines) that turned out to be great at doing the math needed to lob bombs at people.

And on and on. Existing technologies receive government money to improve their killing / defense potential and people mistakenly give "credit" to federal spending for more than the improvements and evolutionary advancements made.

There are examples of "pure" federal research. Definitely. But not as many in technology as people want to believe. Drones? Private first, and then the government realized they could be used to kill. Blimps? Private turned military (and still used today by the Navy). GPS was based on a private concept, but the federal government (until recently) didn't allow private application. (There's a law about exporting or using potential military technology… amazing how that limits private industry and ensures government "innovation" of some technologies. Remember, Apple couldn't export the G5 PowerMac originally. It had "military" uses.)

Friday, November 13, 2015

Taxes, Inequality, Debt, and Deficit

A September 2015 report from the Brookings Institute demonstrates that significant increases in top marginal tax rates would have minimal effects on both income inequality and the federal budget.

This report was prepared by William G. Gale, Melissa S. Kearney, and Peter R. Orszag. It should be stressed that Orszag was Pres. Obama's director of the Office of Management and Budget and a former director of the Congressional Budget Office. Nobody can claim Orzsag is a conservative or libertarian — he is an excellent analyst.

Read the report here:

http://www.brookings.edu/~/media/research/files/papers/2015/09/28-taxes-inequality/would-top-income-tax-alter-income-inequality.pdf
A larger hike in the top income tax rate to 50 percent would result, not surprisingly, in larger tax increases for the highest income households: an additional $6,464, on average, for households in the 95-99th percentiles of income and an additional $110,968, on average, for households in the top 1 percent. Households in the top 0.1 percent would experience an average income tax increase of $568,617.

How would these reductions in after-tax income affect overall income inequality? To answer that question, we calculate the Gini coefficient on the full distribution of post-tax income under the three different tax policy scenarios. (The Gini coefficient is an index that ranges from 0, if everyone had the same earnings, to 1, if a single person had all the earnings and everyone else had none.)

Perhaps surprisingly, increasing the top marginal tax rate [from 39.6] to 45 percent or 50 percent has a trivial effect on overall income inequality. This can be seen in Table 1 below. Under current tax provisions, the after-tax Gini coefficient is .574. This compares to a Gini of .610 calculated over pre-tax income. Raising the top income tax rate to 45 percent reduces the Gini coefficient only from .575 to .573. Raising it to 50 percent brings the Gini to .571. If the 50 percent top tax rate is applied to income only above $1 million for married filers and $750,000 for single filers, the resulting Gini is .572.
Statistically, the results are insignificant in reducing income inequality. Raising taxes might feel good, but it accomplishes little. More importantly, you cannot really raise taxes on the highest earners and then cut lower-income taxes because doing so would not improve the fiscal situation of the United States.

The federal government is broke. Beyond broke. As of the moment I'm writing this post, these are the dark facts of U.S. finances:

Debt as of Nov. 12, 2015: $18.6 TRILLION

Deficit for 2015 (to date): $433 BILLION ($426 billion was forecast in 2014. Ooops)

But raising the taxes on the rich to a 50 percent rate? That would raise only $95.6 billion, not even a quarter of the deficit. Forget any new spending. The tax increase would likely have no net effect, either, because generally Democrats and Republicans call for lower taxes on the middle and lower-income brackets to accompany higher taxes in the upper brackets. If anything, we tend to increase the deficit when making adjustments to rates and tax breaks for the first four quintiles.

Here are the numbers from the Brookings report:
Increasing the top rate to 50 percent with the same redistribution scheme would bring in an additional $95.6 billion in revenue, leading to an additional $2,650 in post-tax income for the bottom fifth of households. Applying a new top rate of 50 percent to income above $1 million for married filers and above $750,000 for single filers would bring in an additional $63.5 billion in revenue, which would result in $1,760 in additional post-tax income for households in the lowest quintile.
It isn't that we shouldn't adjust taxes: someone has to pay for the debts of this nation. But the point is that we are so broke that only cutting spending would have a significant effect on the debt or deficit.

Assuming you did increase the top marginal rate to 90 percent, you might (and only might) raise up to $160 billion per year, assuming the wealthy only exploit a minimum of loopholes (good luck with that assumption). That $160 billion? That would not come close to balancing the annual budget in its current state.

The only way to balance the budget? Grow the economy, cut spending, and raise some tax revenue. Nobody will like all the steps needed to achieve all three of these. Not me, and not my progressive friends.

We don't need a truly balanced budget, but we should aim for a much smaller annual deficit and a significant reduction in the overall debt. In my view, and that of many macroeconomists, the federal debt should be half or less of U.S. gross domestic product (GDP), or about $6 to 8 trillion at this time.

Unfortunately, our national debt now exceeds the GDP of the nation. We owe more than the entire economy generates in a year. That's a very sorry state of affairs, caused by a public that doesn't want to pay for the largess we demand from government and our various international exploits. (Surprisingly, our military spending is only 19 percent of the overall federal budget, including non-discretionary spending, and most is for personnel-related costs.)

Raising taxes, it seems, does little to address inequality, debt, or the annual deficit.

We should be ashamed, since we the voters helped create this mess.

In my now ancient post from 2011, The 90 Percent Tax Rate Myth [http://almostclassical.blogspot.com/2011/03/90-tax-rate-myth.html] I attempted to explain that 1) that marginal rate was an illusion (much less any effective tax rate) due to the number and types of deductions allowed and 2) it wouldn't make much difference to the federal budget.

Since 2010, I've explained "the rich" couldn't pay for much of anything; not even a few months of government services if we confiscated all their wealth. See Taxing the Rich vs. Reality
[http://almostclassical.blogspot.com/2010/11/taxing-rich-vs-reality.html] and this great YouTube video, Eat the Rich [https://www.youtube.com/watch?v=661pi6K-8WQ].

Sunday, September 13, 2015

Not All Degrees are Equal

The Georgetown University Center on Education and the Workforce (cew.georgetown.edu) tracks the return on investment (ROI) of college and specific college degrees. Though going to college is better than not, assuming the individual graduates on time and from a good school, what you study also affects earnings.

What we know about college and income:
  • Obtaining a four-year degree is worth about $1 million over a lifetime compared to not earning a college degree.
  • Obtaining a degree from one of the 20 most elite universities is several times more valuable than earning a degree from a non-elite undergraduate university. 
  • Obtaining a science, technology, engineering, or math degree from any respected school is better than a liberal arts degree, by an average of $3.4 million in lifetime earnings!
  • Obtaining a liberal arts degree from a low-ranked school is similar to not having attended a college!
The following charts are from the CEW 2015 report, based on 2014 data. 

https://cew.georgetown.edu/cew-reports/valueofcollegemajors/




Since the median (half above, half below) household income for 2014 was $52,250, two married liberal arts graduates from a university would likely earn slightly more than the national median as a household. Two STEM graduates marrying would begin their professional lives more than 50 percent above the median!

Individually STEM, business, and healthcare graduates out-earn the national median household income by mid-career. The following chart illustrates the gap between degrees and earnings in mid-career. 



Because studies in the United States and Europe suggest that "like marries like," we find that wealth increasingly concentrates with couples in the STEM and business fields. Two teachers marrying versus two technology experts marrying? That's a significant gap between those households of $60,000… a gap greater than the median household income. 
People with similar education tend to work in similar places and often find each other attractive. On top of this, the economic incentive to marry your peers has increased. A woman with a graduate degree whose husband dropped out of high school in 1960 could still enjoy household income 40% above the national average; by 2005, such a couple would earn 8% below it. In 1960 a household composed of two people with graduate degrees earned 76% above the average; by 2005, they earned 119% more. Women have far more choices than before, and that is one reason why inequality will be hard to reverse.
— http://www.economist.com/news/united-states/21595972-how-sexual-equality-increases-gap-between-rich-and-poor-households-sex-brains-and 
The lifetime earnings gap is enormous for one person. It's massive for two highly educated people in the STEM fields.




For a technical household that's a $6.8 million lifetime earning advantage if both partners have STEM, business, or healthcare degrees. That's a lot of money, all based on what people choose to study. 

In 2012, Bloomberg found that STEM degrees, and schools offering STEM degrees, offered a better ROI than other universities. This trend has held for the last three years.
Nearly a third of the top 30 schools were engineering schools, including the top three institutions: No. 1 Harvey Mudd College, No. 2 California Institute of Technology, and No. 3 Massachusetts Institute of Technology. All three schools had 30-year ROI well above $1 million, a claim only 11 schools could make. On average, engineering schools had ROIs of $603,362, more than double the ROI for liberal arts schools ($245,943), more than triple that of business schools ($141,014), and more than 26 times that of arts and design schools ($22,328).
The only schools that fared better than engineering schools were those in the Ivy League. Seven of the eight Ivies are in the top 15, and the average ROI for all eight was more than $1 million. While costs for these schools are high, several factors worked in their favor, including generous financial aid and excellent graduation rates—both in terms of how many students ultimately graduate and how long it takes them to do so. The weighted net cost to graduate was $84,241—less expensive than half the schools on the list, and half the cost of the most expensive.
— http://www.bloomberg.com/bw/articles/2012-04-09/college-roi-what-we-found
A final thought. Duke University has identified schools that seem to correlate with lifetime earnings, as well. Averages are notoriously bad statistics (median being a better measure), but higher median earnings do align with higher average earnings. 

Here are the 20 universities with the most "successful" undergraduate alumni as of 2014:

1. University of Pennsylvania

2. Harvard University

3. Yale University

4. University of Southern California

5. Cornell University

5. Princeton University

5. Stanford University

8. University of California, Berkeley

9. Dartmouth College

9. University of Michigan

9. University of Texas

12. Duke University

12. New York University

14. Brown University

14. Columbia University

16. Massachusetts Institute of Technology




Friday, August 21, 2015

Fascist! The Left-Right Spectrum Is Bogus

Fascist!

It's the insult that's separated enough from "Nazi!" that it remains popular on blogs, in columns, and even within books claiming to be scholarly. Books claim to identify liberal fascism, conservative fascism, and I am fairly certain there must be a book about moderate fascism.

The problem is that left-right political dichotomies fail to appreciate that political theories and governmental systems overlap and intertwine. American liberals and progressives point to the nationalistic and "traditional values" of Italian Fascism to claim all fascists are of the right. American conservatives and libertarians emphasize the origins of the Italian fascist movement from within unions and socialist organizations to claim all fascists are of the left.

As professor Crispin Sartwell writes:
The left-right spectrum is often characterized in terms of two extreme poles. One way to see that this is incoherent is that these poles can be defined in mutually incompatible ways.
Reducing this down to the (relatively) minor differences between the two major parties in the United States, they are both statist parties interested telling citizens how to live via federal laws, regulations, and the tax code. For the progressives, it's okay to regulate my food, my car, my healthcare, and other aspects of life that I can't be trusted to choose wisely. For the conservatives, it's equally okay to dictate what I can watch (and when) and what secrets I can keep from prying eyes. Statism is simply a matter of kind.

Both parties talk about life, liberty, equality, and freedom. (I'm not sure either mentions the pursuit of happiness anymore). The talking heads and pundits, especially the loudest voices, quickly point to the "fascism" of one side or the other. And we wonder why so many people reject the parties and don't vote.

The United States political parties are both corporatists. But wait, that's a trait of fascism, right? Yes, and no. It's a trait of any political system in the era of corporations. (Public companies didn't exist in current form before the Industrial Revolution, but mercantile companies did exist, and national leaders pandered to those.) For the Democrats, tax breaks to "green" companies and "socially responsible" companies is good, and tax breaks for carbon energy companies is bad. For Republicans, military research funding is good, while tax breaks to green companies is "picking winners and losers" via centralized social engineering.

My point should be clear by now: our parties both pick winner and losers, with close ties to corporations that align with their political and philosophical visions of what is "good" for the nation. And both parties appeal to patriotism, "equality" (at least of opportunity), and other sources of nationalist pride. Both parties talk about small business, working people, and so on, and so on.

Are they both fascists? No. Neither major party is anything close to Italian Fascism. (Colleagues on left and right will argue with my assertion by finding outliers on the fringes.)

In practice, fascism was both anti-liberal and anti-conservative, seeking to transcend class while opposing communism and neoliberalism. It is, at best, a complex rejection of pretty much everything except what the fascists decided was good. Read the books by Roger Griffin on the topic of fascism and the problems with left-right divisions become even more clear (or less clear). Complicating the left-right model, every government claiming to be fascist has also claimed to be socialist in some way. Yet, fascists oppose communism and models of egalitarian equality.

Historians have built careers on claiming Fascists and National Socialists are of the right, including Roderick Stackelberg. Because Stackelberg offers a simple, comfortable, and (at least for progressives) morally clear definition of "left" as supporting equality among people, thereby suggesting the "right" not only accepts but celebrates inequality, his version of left-right is popular on left-leaning websites and in politically progressive books. Apparently, we can ignore the "Fascist Left" that gave rise to Benito Mussolini and the German socialists who initially supported Adolf Hitler. Yes, there was a left-right within Fascism, too.

(I've noticed that people feel superior after telling us that nobody is superior. Maybe that's the hallmark of political rhetoric: accidental superiority through seeing the "obvious" that other, less enlightened citizens cannot see. )

Things are simply not so simple.

There are radicals from the left and right who consider themselves libertarian, something few people seem to know or appreciate. There are conservative communitarians (the Amish certainly fit this model, as do some Orthodox Jews). Theoretical and implemented political structures get blurry.

A year ago, Sartwell addressed the problems of the left-right divide for The Atlantic. You should read the entire article, with which I'm certain most of my colleagues will disagree — since many have told me so. ("I have nothing in common with the right! Nothing!" Yes, because that's how we should start academic queries into serious questions of dichotomy.)
The Left-Right Political Spectrum Is Bogus
http://www.theatlantic.com/politics/archive/2014/06/the-left-right-political-spectrum-is-bogus/373139/
by Crispin Sartwell
June 20, 2014

Note: Sartwell teaches philosophy at Dickinson College. He is the author of the collection How to Escape.

Americans are more divided than ever by political ideology, as a recent Pew Research Center study makes clear. About a third of people on each side say of the other that its proponents "are so misguided that they threaten the nation's well-being." They're both right about that.

My prescription isn't civility or dialogue, which though admirable are boring and in this case evidently impossible. Rather, my approach is "philosophical": to try to confront both sides with the fact that their positions are incoherent. The left-right divide might be a division between social identities based on class or region or race or gender, but it is certainly not a clash between different political ideas.

The arrangement of positions along the left-right axis—progressive to reactionary, or conservative to liberal, communist to fascist, socialist to capitalist, or Democrat to Republican—is conceptually confused, ideologically tendentious, and historically contingent. And any position anywhere along it is infested by contradictions.
Only someone with no knowledge of United States history could deny that the Democrats and Republicans, and earlier parties, swapped positions and geographic power-centers every three to four generations. Today's parties are "flipped" versions of their nineteenth-century ancestors.

Conservative Richard Nixon might be among the most progressive, centralized presidents in U.S. history. Certainly Abraham Lincoln was a unionist, a federalist of the most dedicated variety. Meanwhile, Thomas Jefferson and Andrew Jackson were vehement individualists, opposed to large organizations and central powers.

What about religion? Aren't the Evangelicals in the Republican Party trying to control everyone? That's a bit more complex than this moment in time suggests. As Sartwell writes:
…To take one example, the radical and egalitarian reform movements of the early and mid-19th century in the U.S.—such as abolitionism, feminism, and pacifism—were by and large evangelical Christian, and were radically individualist and anti-statist. I have in mind such figures as Lucretia Mott, Henry David Thoreau, and William Lloyd Garrison, who articulated perfectly coherent positions that cannot possibly be characterized as on the left or the right.
The idea that the individual is sovereign is the key to libertarian, classical liberalism as developed by John Stuart Mill in On Liberty. To implement and protect these personal freedoms, Republicans turned to federal powers. Negative rights, protections from encroachment on liberty, still had to be codified.

It was the Republican "Federalists" who used federal law, and Constitutional Amendments, to expand the right to vote and other protections to women and minorities. The GOP used federal power to tell states what was and was not acceptable. Curiously, the GOP also argued in favor of states' rights to decide issues of slavery, because the North wanted to ignore federal rulings that support the notion slaves were property. See how messy even "states' rights" can get? For them until you're against them. Marijuana legalization is an example of this "states' rights" argument flipping from right to left.

If we return to fiscal capital, instead of human capital and freedom, surely there is a clear difference between left and right? Isn't the real battle among political and economic ideologies about the state versus private capital? Sort of…

As Sartwell writes, that's the easy left-right discussion, and one both sides in the United States (and elsewhere) seem to accept. As I wrote in the opening, the United States' political parties are both corporatists.
The most common way that the left-right spectrum is conceived—and the basic way it is characterized in the Pew survey—is as state against capital. Democrats insist that government makes many positive contributions to our lives, while Republicans argue that it is a barrier to the prosperity created by free markets. On the outer ends we might pit Chairman Mao against Ayn Rand in a cage match of state communism against laissez-faire capitalism.

The basic set of distinctions on both sides rests on the idea that state and corporation, or political and economic power, can be pulled apart and set against each other. This is, I propose, obviously false, because hierarchies tend to coincide.
We do love our cage matches. And, from the left, all one has to do is scream "Ayn Rand! The right loves Ayn Rand!" and the cheers of support will ring out through the blogosphere. (Che was much worse, someone who ordered and watched executions — despite some glossy and romanticized biographies — but Rand… she's a louse and a louse associated with libertarians and the right. Every side as its flawed champions.)

People fight, literally killing each other, over which side is "better" than the other. Capitalists versus communists. Fascists versus everyone. And in the end, everyone is really fighting versions of themselves. Why is that? Because the communists are now capitalists. The capitalists are now socialists. The genuine fascists… are still confused.
State and economy are merged in different permutations in Iran and Egypt, in China and Russia, in the U.S. and the E.U. We might say that the current Chinese state combines the most salient features of Maoism and corporate capitalism: It's all devoted to generating maximum cash and putting it on a barge—destination: the very top of the hierarchy. And yet it also attempts to bestride the earth with the iron boot of collectivist totalitarianism. Now, that appears incoherent if you are trapped in the spectrum. A conventional political scientist associates capitalism with John Locke and Adam Smith and democracy ("liberalism," I suppose). On the other hand, since socialists reject free enterprise and propose grand redistributionist schemes, they require a big, powerful state. For a long time, people thought of the Chinese system as combining opposed or contradictory elements.

I'd say no one is so sure anymore. We should think instead of the Chinese state as a provisional culmination of both state socialism and corporate capitalism. In ideology, they are opposites. But we don't live in the textbook on political ideologies. We live in a world where corporate capitalism has always completely depended on state power, and the basic practical thrust of left statism has always been annexation of the economy. The Soviet Union was a variety of monopoly capitalism, and the modern American state is a variety of state socialism.
Yes, Sartwell is correct, we are all everything and entirely confused. But that won't stop us from fighting over the details of the balance (or imbalance) among all the various positions. We have our tribes and are going to stick with them.

How did the tribes get so much power? Because they told creation myths that fed into their versions of right versus wrong. Ideology is rarely logical, but we convince ourselves that ours happens to be logical and natural. Or, as Marx claimed, scientific!
Our mistake was that we believed the account these ideologies gave of themselves. But that scrim was always thin. There are capitalist theoreticians who have fantasized and recommended stateless free markets, and there are communist theorists who have fantasized no markets at all, always glossing over the fact that what they actually meant was the permeation of every aspect of life, including markets, by the state. These were fantasies. What these people wanted appeared to be entirely opposed, but they were each devoted to their own sort of hierarchy, and hierarchies tend to coincide.
We're all heading in the same direction, but our stories claim otherwise. Stateless markets? Marketless states? Doubt anyone could tell the difference. Maybe I'm just as guilty of cultural and ideological blindness as everyone else Sartwell describes. My faith in markets is based on a distrust of government, but in the end power exists somewhere.
The idea that free markets are historically distinguished from large, powerful states is an ahistorical ideology shared by the capitalist right and the communist left. We might think of the left-right spectrum as a single ideology rather than a taxonomy of opposites. Thus, the left/right or Democrat/Republican split—which turns American politics into a hyper-repetitive, mechanical set of partisan bromides about free markets versus government programs with egalitarian results—depends on a historical mistake.
Another indication that the divisions of left-right are artificial and confusing is that most of us agree with some people and positions from across the supposed political spectrum. Until the last decade, I've never understood how the two political parties were defined, with moderates from the two parties more alike than members of their respective parties. (That's no longer the case, since it is hard to locate moderates.)

As an agnostic libertarian dedicated to equal rights and opposed to corporatism, I don't "fit" with either party — but I agree with many voters I've met on many issues. Yet, for some inexplicable reason, "libertarians" are grouped with social conservatives, corporatists, and supply-side monetarists. Seriously? Where do my ideal fit within the Republican Party? They don't. Not even close.

I'm not part of any political party, and politicians in the two major parties might want to reconsider their own associations. The parties are incoherent and internally divided by conflicting interests.

Business leaders don't want Republicans talking about social issues. Manufacturing union leaders don't appreciate Democrats talking about environmental policies. The interests of constituents in the parties don't align. Should police (law and order supported by Republicans) follow their union leaders (labor supported by Democrats)? Parties offer confusing delineations. Agreeing with "enough" of a party's platform, or having a historical bond to the party seems sufficient for many people.
It's awfully strange that Rand Paul and John McCain belong to the same political party and are generally held to be on the same end of the political spectrum. I'd say they each disagree more profoundly and substantially with the other than either disagrees with Barack Obama, for example. Some of the most historically salient "right-wing" movements are monarchism, fascism, fundamentalism, and libertarianism, which have nothing in common except that they all have reasons to oppose Marxist communism, and vice versa. Yet they also all have similar reasons to oppose one another. Toss in David Brooks Burkeans, security-state neocons, and so on, and you have a miscellany of unrelated positions.

The left pole, meanwhile, could be a stateless society of barter and localism; or a world of equality in which people are not subordinated by race, gender, and sexuality; or a pervasive welfare state; or a Khmer Rouge re-education regime. The Nazi Party, Catholic Church, hereditary aristocracy, Ayn Rand capitalists, and redneck gun enthusiasts are all on the same side of the left-right spectrum. So are hacktivists, food-stamp officials, anti-globalization activists, anarcho-primitivists, and advocates of a world government. It would be hard to come up with a less coherent or less useful way of thinking about politics.
Our fear of the "fascists" of the other side, the party we know will increase concentrated power… leads us to concentrate power, simply in the other direction. We become the thing we feared, but of course our centralized power won't be problem. With our side (whichever that is) now in power, equality and justice can prevail! Until they don't.

Sartwell uses the progressive, scientific and bureaucratic left as an example of the best plans not meeting expectations.
Examining another familiar opposition, between "equality" and "liberty," produces another cluster of contradictions. The left holds up "equality" as a fundamental value. The means leftists propose to increase economic equality almost always increase political inequality, because these means consist of larger state programs: more resources and rules, coercion and surveillance in the hands of officials or state contractors, including in welfare-type programs. The welfare state is more pervasive now than it was a century ago, and we now have institutions like compulsory public education. These are achievements of the left, programs they are still trying enhance, but have they actually resulted in more equal societies? Quite the contrary, I believe: They have led to ever-more-frozen hierarchies. The mainstream left is a technocratic elite, with a cult of science and expertise and an ear for the unanimous catchphrase. This is anything but a meritocracy; it an entrenched intergenerational class hierarchy.
What seems to astonish Sartwell is that the "sides" at battle agree on the nature of the conflict. Why do we agree on this capital versus the state definition of political disputes? And isn't this something of a modern invention? Until the Italian banking system emerged thanks to the House of Medici, economics and politics were pretty simple: monarchs ruled, everyone else did as told — or plotted to kill the monarch to install a new monarch.

History aside, we've decided this capitalism-state balance debate is the stuff of real and intellectual wars. That conflict is the outline of modern history since the nineteenth century.
Milton Friedman and Vlad Lenin, Ho Chi Minh and Barry Goldwater, Barack Obama and Rand Paul, Francois Mitterrand and Margaret Thatcher, Ronald Reagan and Fidel Castro, Friedrich Hayek and Thomas Piketty, Paul Krugman and Augusto Pinochet: They may well have disagreed about this and that. But they have agreed, or said they did, that the state was a force that was historically pitted against private capital. To reduce one was to increase the other and vice versa. They vary inversely and the balance between them that you recommend constitutes the fundamental way of characterizing your political position.

This spectrum stretches from **authoritarianism on the one end to authoritarianism** on the other, with authoritarianism in between. It makes anything that is not that incomprehensible. It narrows all alternatives to variations on hierarchy, structures of inequality, or profoundly unjust distributions of power and wealth. There are alternatives, and the one I would suggest is this: We should arrange political positions according to whether they propose to increase hierarchy or to dismantle it. Instead of left and right, we should be thinking about vertical versus horizontal arrangements of power and wealth.
I doubt Sartwell would agree, since he suggests authoritarianism also dominates in the middle, but it seems that a "balanced" private-public, individual-group dynamic gets closer to some sort of less centralized power. Or maybe not.

I was hoping we wouldn't find those moderate fascists.