Almost Classical

English: A graph of the US GDP compared with Federal budget outlay. (Photo credit: Wikipedia ) The United States' federal budget spends a lot of money: between $3.5 and $4.0 trillion annually. How much do citizens of the United States earn each year? A little more than $6 trillion. In other words, the U.S. government is spending roughly two-thirds of the amount earned by all working  Americans. Two-thirds. The top 10% of income earners represent $1 trillion in earnings, certainly a lot, equal to the entire stock valuation of Apple (not the same as Apple's earnings, which are $9 billion per quarter, $36 billion annually). If every penny earned by the top 10% were confiscated  it would have no material effect on the federal budget. That's how out of sync spending is today. The total wealth  in the United States is nearly $70 trillion, meaning everything owned by every person or company, at current "fair value" is worth $70 trillion. Yet, if you were

History of top marginal income tax rates in the United States (Photo credit: Wikipedia ) One of more popular / infamous posts here on Almost Classical is " The 90% Tax Rate Myth ." It explores the differences between marginal and effective rates and explains that when the marginal rate was 90% or higher, the effective rate  remained relatively consistent, between 40 and 50% throughout the twentieth century. Even in most of Europe, effective rates stay close to that same range, indicating something of a natural ceiling for effective tax rates. No serious economist would propose a tax rate of five or ten percent for the highest income earners. The actual debate among economists is where tax rates produce the greatest revenues with the least detriment to risk taking and entrepreneurship. In current academic papers, the debate on the highest marginal individual tax rate ranges from 35% to 60%, with most studies finding 45% works well as an effective tax rate on the top ten

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:/

Success: It's not about money. One of the critiques of "libertarian" and "classical liberalism" I answer is that these philosophical lines encourage greed, especially in the democratic capitalism of the United States. Seeking your own success does not have to correspond to the pursuit of wealth as measured by bank statements and material goods. Authentic  classical liberalism allows me to pursue whatever fulfillment I seek, without a government bureaucrat deciding we have too many artists, or too many doctors. We pursue our dreams — and the market demand determines if we can earn a "good enough" living. And yet, there are cultural pressure in our society to count and tally our success in unhealthy ways. Since childhood I have feared being poor. My family lived in tiny apartments, mobile homes, and small houses. We had "enough" but were always closer to less than more. My wife and I have lost everything. We have been broke. I had n

Teaching within a top-ranked business school associated with nine Nobel laureates in economics, I am honored to meet some of the brightest young minds in the world. These students excel at math, as one might expect, and many also pursue second degrees or minors in additional STEM (science, technology, engineering, and math) fields. At our institution, economics is paired with statistics by default, as we emphasize quantitative economics over the philosophical approaches to the field. Although I admire these students, I'm also saddened that so many chase financial industry careers over working in other STEM fields or in the public sector. These great minds set forth to turn money into more money, when they might use their skills to apply the lessons of economics and statistics to greater social good. As Washington Post reporter Jim Tankersley writes, it isn't that finance is a "good" or "bad" pursuit for an individual — but in the last two decades finan

The rich are not "smarter" as the following headline suggests — but they do attend elite universities and major in the more demanding academic fields. When this article appeared in May, I was winding down my first year at an elite institution, in its business school. If many of my students are destined for wealth, is it because they are smarter, more gifted, harder working, born to the right families? What is it that takes someone from the middle-class (or nothing) to extreme wealth? The rich are different—they're smarter, study says http://m.cnbc.com/us_news/101679720 —By CNBC's Robert Frank. CNBC.com | May 16, 2014 | 11:12 AM EDT Economist Paul Krugman recently wrote that the multibillion-dollar salaries of top hedge fund managers proved that education plays little role in the growing wealth gap. The rich get rich, he said, because of the "runaway financial system" and investors making money from money. "Modern inequality isn't about gra

This would be "old news" if President Obama's new budget didn't include yet more tax increases on the highest income earners. I include my usual caveat: we tax income, not wealth — so the president and others talking about "the rich" or "wealthy" households are intentionally misleading audiences. The wealthy have their money. The taxes were paid (or not) already and the wealth has been safely invested. Income is what we tax. Period. And those taxes are at near-record highs, in terms of effective rates  paid to local, state, and federal coffers by the top 20 percent of income earners. Caveat two: the effective rate paid is not  the "marginal rate" applied to the last dollar someone earns. Again, the president and others mislead by citing higher marginal rates in the past — though the effective rates were much lower! See also: http://almostclassical.blogspot.com/2013/01/in-2013-top-1-will-pay-their-highest.html http://almostclassica

I've written a few times on this topic. The cold reality is that today's technology economy is different  when compared to the Industrial Revolution. Unlike the Industrial Revolution, which eventually created new jobs, products, and wealth, I'm concerned that the tech revolution is going to result in fewer jobs. Oh, it will still create new products and wealth… but not nearly enough jobs to offset what will be lost. You might wonder if I'm being alarmist. But, the new jobs of the Industrial Revolution did not require specialized knowledge or abilities. You only needed a body that worked to take a factory job. A high school diploma was sufficient, and even that wasn't always essential. Today, the new jobs require skills only a few people have or can obtain. As the following article demonstrates, we simply do not need as many people in this economy. In science fiction and utopian literature, the machines would free us to sit around and be creative. But, such crea

I am a "serial entrepreneur" by nature. As early as junior high, I was trying to sell my services as a computer tech and programmer. I also knew I wanted to sell my creative writing. Business fascinated me — I tracked the stock market, the precious metals, and the general commodities when I was in the fifth grade. Not everyone is an entrepreneur; I understand that. Unfortunately, many people don't seem to understand what motivates entrepreneurs and how we help economies and society overall. On an older blog post, the following comment was recently posted: So instead of viewing him [the entrepreneur] as a 'job creator', he's just another consumer. He may consume other peoples' labor (time/skill/effort) in creating a corporation to earn him profits, but he's not a job creator. The market demand creates jobs. Not entrepreneurs. Entrepreneurs just chase demand and buy labor in order to earn even more revenue and make profit.  Entrepreneurs do not creat

Robin Hood Misunderstood The legend of Robin Hood is sometimes cited as an example, mistakenly summarized as "Take from the rich and give to the poor!" That is not what Robin Hood did, though. Robin Hood fought the corrupt sheriffs of Nottingham and Derby. What made these men corrupt? They collected unreasonably high taxes  from the residents of the two shires. Prince John of the stories also raised taxes, not only on the poor but also on the wealthy nobility. Those who were loyal to the prince, however, received "favors" (lower tax rates) and were more likely to have the crown prince buy goods from them. (Crony capitalism, anyone?) The way the system worked at the time, the sheriff was the tax collector and law enforcement in a region. He paid to retain the post, using tax money and fines to fund the annual payment to the royal court and to pay off local nobility for their support. Robin Hood fought unfair taxes and tax breaks given to the fortunate few

There have been a great many blog posts and columns written since President Obama spoke on July 13, 2012. Many of his defenders have tried to "correct" any confusion about what his words meant, arguing that his statements were misinterpreted by the press and taken out of context by opponents. As Charles Krauthammer rhetorically asks, "Did the state make you great?" http://www.washingtonpost.com/opinions/charles-krauthammer-did-the-state-make-you-great/2012/07/19/gJQAbZOiwW_story.html The problem for Pres. Obama and his supporters is that his argument is deeply flawed. We do succeed with the help of friends, family, church, non-profit organizations, and, yes, government (generally of the local variety). But, many people have the exact same access to all these various supports… yet some succeed and some fail. Also, a simple point of fact: government is the people, not something outside and above the people. Without successful people paying taxes, there would b

Wealth will move to avoid taxes. Eduardo Saverin, the billionaire co-founder of Facebook Inc. (FB), renounced his U.S. citizenship before an initial public offering that values the social network at as much as $96 billion, a move that may reduce his tax bill. — http://www.bloomberg.com/news/2012-05-11/facebook-co-founder-saverin-gives-up-u-s-citizenship-before-ipo.html This year, nearly 2,000 U.S. expatriates have renounced citizenship, more than in the previous 25 years. The top 0.1% now average four nations of residency (eight weeks or more per calendar year), so they can and do move from home to home with ease. Rich Americans renouncing U.S. citizenship rose sevenfold since UBS AG (UBSN) whistle-blower Bradley Birkenfeld triggered a crackdown on tax evasion four years ago. About 1,780 expatriates gave up their nationality at U.S. embassies last year, up from 235 in 2008, according to Andy Sundberg, secretary of Geneva's Overseas American Academy, citing figures from t

If everyone earned no less than $30,000 and no more than $50,000 a year, we'd have far greater "mobility" between classes. So argues the chattering class, most of whom occupy the evil top one percent. No, that's not what they are saying and writing, but they are complaining that the United States has less social mobility than other nations. The problem? Those nations have less mobility because they have artificial floors and social limits on how far people can climb. To which nation was the U.S. compared by the New York Times? Denmark. American men born in the bottom quintile are more likely to stay there than the Danish, according to a study of earnings across generations. — http://www.nytimes.com/interactive/2012/01/04/us/comparing-economic-mobility.html?ref=us Denmark? Compare education attainment. Compare the makeup of the society, including such factors as immigration and emigration. This is a strange comparison. Denmark, unlike the United States, is inc