Sunday Musings 2/7/16

The Rise and Fall of American Growth

There is a new book by this name in the New and Notable book list in the NY Times Book Review list.  I will not buy it or read it because I am sure it is quite droll.

But the title did start me musing on how many goods does the average person need as a goal for political policy.  It you take the Grover Norquist view, we shouldn't pay any taxes so we can take our money, spend it on anything we want to, and pass on as much as we want to our children.

But, not everyone wants a power boat, nor ski vacations, nor to fly in an airplane, nor to own multiple houses or even a house.  Nor should public policy be really concerned with anything other than personal safety, access to shelter, health care, food, and education.  One might wonder where financial regulation comes in there and I would say protection from fraud is a matter of personal safety and helping people preserve their access to shelter, health care, food and education.

Now I guess Conservatives would say that those with capital know how to use capital to create more capital and since Capital creates jobs, it is best to preserve that capital with those who know how to use it most productively.

That strikes me as a false reality.  Almost all capital is managed by professionals who are well paid and have every incentive to try and manage that capital we well as they can so they will continue to be well paid.  Most capital traditionally was owned by Banks, Pension Plans and Insurance Companies who used professional money managers to allocate capital.  Those professionals were smart people and even they make mistakes, and don't need any tax incentive to  work hard because they are well paid and have very gracious life styles.

As for the new wealth, there is an awful lot of capital sloshing around the carried interest world being taxed at capital gains rates for their professional money manager.  Why, in the name of lower thy taxes to create jobs, should these asset managers be favored over the other asset managers?

So the argument for lower taxes to create jobs really falls on the entrepreneurs who work in the actual businesses and self fund their growth.  That is a very small subset of the population and they probably  can manage their taxes reasonably well already and perhaps some of these schemes should be preserved in any future tax reform.

Anyway, what I was really wanted to discuss was the interaction of tax policy and life style support in the general population.  The more I think about it, it seems to me the only coherent link is people with a lot of money give a lot of money to politicians who will not raise their taxes and these politicians support lower taxes so they will continue to get this campaign money and seek to maintain their salaries as government officials.  I think economists call this rent seeking.  And successful rent seeking is usually bad public policy from both a liberal and conservative point of view.

I guess I support cleaning up money in campaigns somehow.