The Liberal Order

Here's an example of a meaningless statistic.

This was the wording on the Twitter feed:

"Hunger Games Trilogy Beats Harry Potter Series To Become All-Time Bestselling Book Series" 

Wow! That's an amazing feat given the popularity of the Harry Potter series and the fact that the Hunger Games, though captivating at first, apparently petered out. (I only read the first book and was greatly impressed with the writing and story until about two-thirds of the way through, and then got bored. Other people who have read all three said the second book was better, but that the third was terrible. DC told me to not even read the second because that would force me to read the third, which was a total waste of time.)

Anyway, the following are the first two paragraphs from the story linked to in the Twitter feed. 

Although author Suzanne Collins only wrote three books, her Hunger Games trilogy has been able to zap the magic out of J.K. Rowling’s seven-part Harry Potter franchise on Amazon.com,. Taking into consideration print and digital Kindle book sales combined, The Hunger Games, which are much shorter reads than the Potter books, have captivated a wider range of fans around the globe. All of the books in the Hunger Games and Harry Potter series are available for Kindle owners with a Prime membership to borrow for free in the Kindle Owners’ Lending Library.

“Since debuting in 2008, Katniss Everdeen and the Hunger Games have taken the world by storm, much as Harry Potter did a decade before,” said Sara Nelson, Editorial Director of Books and Kindle, Amazon.com. “Interestingly, this series is only three books versus Harry Potter’s seven, and to achieve this result in just four years is a great testament to both the popularity of the work and, we think, the growth in reading digitally during that time. Customers love these books and all three titles are consistently on our Top 10 lists in both print and Kindle formats, and The Hunger Games is also the most-borrowed book in the Kindle Owners’ Lending Library.”

Got that?!? It's only from sales of both physical books on Amazon.com and Kindle sales, as well as the free loans of Kindle books to Amazon Prime members that are included in the count. The first Harry Potter book was published in 1999, far before the average reader bought their books from Amazon, and the Kindle wasn't even around. Since then, the largest bookseller (Borders) has gone out of business.

Many of the Harry Potter books were also purchased at bricks and mortar stores because people wanted to purchase the books at midnight the day they were released. There wasn't that same excitement for the Hunger Games books. 

Lastly, Kindle and the Amazon Prime free lending were not even available for many of the HP books, which offered a more convenient and less expensive forum for reading books like the Hunger Games. 

Let's compare sales of all books from all retailers, not just one. I would also like to see the total real sales from all books in both series. My guess is that J.K. Rowling wins hands down.

Is Mitt Romney paying a "fair" share of his income in taxes?

In discussing Paul Ryan's federal tax return, the Associate Press's Stephen Ohlemacher notes

Ryan, R-Wis., paid an effective federal tax rate of 15.9 percent in 2010 and 20 percent in 2011, according to tax returns released by the Romney campaign Friday evening. 

He then goes on to compare this to the effective tax rate paid by Mitt Romney.

Romney paid about $3 million in federal income taxes in 2010 for an effective federal tax rate of 13.9 percent. For 2011, Romney's campaign estimates that he will pay about $3.2 million for an effective federal tax rate of 15.4 percent.

On average, middle-income families, those making from $50,000 to $75,000 a year, pay 12.8 percent of their income in federal taxes, according to the nonpartisan Joint Committee on Taxation. By comparison, Romney made about $21 million a year in 2010 and 2011.

Wow! It seems like Mitt Romney gets away with paying little compared to Paul Ryan and the rest of us. Why Ohlemacher even compares this to Barack Obama, who it appears took a whipping on his taxes.

President Obama and his wife reported paying $162,074 in federal taxes last year on $789,674 in adjusted gross income, for an effective tax rate of 20.5 percent.

Son of a biscuit eater (I'm in the south, remember?). That Romney is getting away with murder. Or is he?

Ohlemacher might want to differentiate between marginal, effective and average tax rates in order to give a less misleading comparison.

First, Ohlemacher acknowledges that Romney's income is largely from investments, including capital gains and dividend income. These are taxed at lower marginal rates than labor income.

What Ohlemacher fails to explain, or doesn't understand, is that marginal and average tax rates are not the same thing. Nor does he include all federal taxes paid by all people.

Let's start with the dividend income earned by Romney. According to this, the effective tax rate on corporate income has averaged about 25.6% since the 1980s. However, temporary changes enacted for 2010 and 2011 allowed corporations to pay an effective tax rate of just 12.1% for those two years. So let's say that Mitt Romney's share of the corporate profits earned by a company in which he owned stock in 2011 was $100. That company paid $12.10 in federal corporate income taxes for that year ($25.60 for most of the past 30 years) and disbursed $87.90 to Mr. Romney in the form of dividend income. Mr. Romney then, according the Mr. Ohlemacher, paid in dividend taxes $13.54 of that $87.90, for an effective tax rate of 15.4%. This means that total federal taxes paid on Mr. Romney's share of that company's $100 profit was $25.64, for an effective tax rate of 25.64%.

Now, there are a host of problems with this, including the fact that investors do not incur the total burden from a tax imposed on corporate income. And in a typical year the numbers would have been $25.60 paid in corporate income taxes on that $100 profit, and $11.46 in taxes paid on the remaining $74.40 disbursed as dividend income to Mr. Romney. This amounts to an effective tax rate of 37.06% that Mr. Romney typically would have paid in most years rather than the 25.64% for the last two years.

But as I noted here, using CBO data, when you include all federal taxes paid and consider the average for all of these, the rich have consistently been paying over 25% of their income in federal taxes. The average rate for all federal taxes paid by the top twenty percent of income earners in the U.S. has a) exceeded the rate paid by all other income groups (we would expect that with a progressive tax system), and b) been the only rate that has not declined substantially since 1979.

Whether you agree or disagree that the rich should pay more in taxes, using marginal and effective tax rates is misleading, and raising the marginal rate is counterproductive.

I am not a fan of Mitt Romney, nor am I a fan of Paul Ryan. But failure to understand the difference between marginal and average tax rates, and forgetting to include all taxes paid, lead to faulty analyses and bad policy decisions. In either case, sound policy calls for lowering marginal tax rates and broadening the tax base by eliminating EVERY deduction. Tax policy today is nothing more than rent-seeking by speicial interests to have their product or service treated differently in the tax code, which distorts both production and consumption. It also provides avenues for the wealthiest to shield their income from taxes. If you want to reduce the deficit, reduce tax rates and broaden the tax base. 

Remember, people respond to incentives.

Once again, tax things you want less of and subsidize things you want more of.

It seems that due to Britain's tax policy, athletes (and performers) avoid competing there.

Few high earners in other fields would choose France over Britain on tax policy, but athletes are a different story. The British government has granted an exemption to income linked to Olympic and Paralympic competition. But normally Britain takes a cut of an athlete's worldwide endorsement earnings—that means overseas sponsors in addition to those in the U.K.—proportional to the time spent in Britain. By comparison, the U.S. only taxes nonresident athletes on endorsement fees paid by American sponsors. France does the same.

So if in a given year Mr. Bolt ran in six races, one of which was in Britain, Her Majesty's government could collect income tax on one-sixth of his total income from sponsorships. Given that Mr. Bolt's contract with Puma alone is worth $9 million annually, the final U.K. tax bill for a single London race could dwarf his appearance fee, which has been in the range of $150,000 to $250,000.

Price Controls and Gas Lines

Don Boudreaux reminisces about price controls on gasoline and having to wait in line for twelve hours just to purchase some back in 1979.

I worked at a gas station in high school at that time. I, too, remember those days well.

First, it was not uncommon for someone to pull up to the pump after waiting in line for three or more hours to say, "Fill it up." After about ten to fifteen seconds, the pump would stop - it was filled. 

"It didn't even take a gallon." I would say.

A typical reply was, "Oh, I know. I wanted to fill it up today because I knew I couldn't get gas tomorrow and didn't want to run out."

In a stroke of genius, President Jimmy Carter signed into law that, in order to allocate gasoline more efficiently, you could buy gas on odd numbered days only if the last digit of your license plate was an odd number, and on even numbered days if it was an even number. People responded accordingly.

Also, being partial to females, it was also not uncommon to either turn the pumps back on for an attractive female (Come on, I was a teenager.) or to extend the time we were open in order to permit an attractive female to get gas. It's called allocation by seller preferences.

Why do Progressives always believe they have the high road?

Driving with a friend the other day, a Democrat, we discussed how the GPS that most people now have in their cars has reduced the need to remember landmarks and figure out the routes to take when you want to get somewhere. In other words, the GPS has become a crutch that enables our laziness, which in this case isn't necessarily a bad thing in that it frees our minds up to remember other things.

Now, the picture below made the Internet rounds a few weeks ago and I post it for the same reason. And after reading Katrina vanden Heuvel's (I just love the name) article in today's Washington Post, I wonder the following. Do Progressives ever, ever, ever think that the welfare and redistributionist policies they promote, all in the name of wanting to help others, actually makes worse off the poor and least-skilled among us? Have they ever, ever, ever considered that, given the incentives to which people respond, such programs actually retard improving one's human capital? This keeps them poorer and dependent, both detrimental to improving the human condition.

Instead, the selfish interests of the Progressive mindset is blatant and disturbing. If they truly wanted to help the poor and least skilled they have to find ways of increasing the labor productivity of the least skilled, not subsidizing them to remain unproductive and out of the workforce. But working to improve the skills of the poor requires a) more effort expended working with the poor rather than lobbying governments to transfer money from the most productive to the less productive, and b) requires admitting mistakes and turning against politically entrenched allies in the form of teachers unions and other rent seekers.  

No, Ms. vanden Heuvel, it's you and your Progressive friends who are cruel.

Chuck Lane On Paul Ryan and the Elderly

First, here are the titles of today's opinion pieces listed on the home page of the Washington Post:

• Boule: Republicans ambivalent on Romney
• Rubin: Romney-Ryan attack . . . on Medicare!
• Stromberg: Romney-Ryan cowardice on Medicare
• Milbank: Ryan almost as awkward as Romney
• Vanden Heuvel: Ryan is cruel, not courageous
• Lane: Actually, the elderly aren't at risk
• El-Erian: Paul Ryan and the 'new normal'

Fortunately, Lane's article gets away from the Romney-Ryan attacks and adds some good insight into the debate on Social Security (though Medicare is the real budget buster over the next fifty years).

We must never go back to the days when old age was a time of privation for the relative few who reached it. But as nightmare scenarios go, that one seems more remote than entitlement-driven national bankruptcy, given the stubborn and expensive fact that the over-65 population is on track to double in the next 40 years.

- - - -

Sooner or later, politicians are going to have to treat older voters not as potential victims but as secure and fortunate citizens, who can and should contribute their fair share to resolving the country’s fiscal predicament. In other words, to treat them as what they are.

And Lane is not against the elderly, as he notes at the beginning of his piece,

I hereby declare that I admire and like the elderly. My parents are elderly. I myself hope to be elderly someday, and to remain that way for a long time.

For those of you who remember the movie Shattered Glass, Chuck Lane was the editor of The New Republic when Glass was outed for fabricating stories. Lane eventually fired Glass, apparently against the wishes of his own staff who thought Glass just made a few mistakes and Lane was too harsh. Lane was proven right. 

Sometimes lottery games result in statistical anomalies.

The winning combination in the state’s twice-a-day Pick 4 lottery turned out to be 1-1-1-1 on Saturday night, and it also turned out that 1,995 tickets beat the 1-in-10,000 odds of matching all four digits in order, state officials said Sunday.

Story here.

This reminds me of the time 19 people picked 5 out of 6 winning numbers of the Powerball Jackpot (no one picked the powerball), each one using the numbers they found in their fortune cookies. 

 

The Pros and Cons of the Paul Ryan Pick

Pros:

1. He's a statesman - Paul Ryan is principled (whether you agree with those principles or not, he promotes the Ryan Plan regardless of his audience.) This is exactly what Romney lacks. (See #1 of the Cons below.) Ryan can help Romney rise above the fray of the immature and irrelevant campaigns both have become.
2. Tea Party candidates have been winning elections to both state and national offices around the country, and the 2010 Congressional elections indicated a strong repudiation of Obama policies during his first two years in office, as well as a repudiation of establishment Republican statist ideology. This implies that more and more voters are rejecting Obama's collectivism and big government ideas in favor of less government intrusion. Romney needs to drill this home. Yes, this election is about what kind of America we want in the future (though neither really does anything substantiative about spending): The Obama top-down collectivist policies where the federal government imposes more and more control over our economic lives, including borrowing more and more money from future generations to give to political allies, all the while exacerbating income inequality by enriching the political class and their cronies, or to begin devolving power from DC to the states and to the people. Romney needs to make a better case for his tenure at Bain Capital and how his experiences taught him how to find solutions and resolve problems, not avoid them.
3. Unlike Biden and Palin, Ryan is articulate and clear and comes across as intelligent, making digestible complex policy proposals and problems. If Obama is going to defeat any benefit Ryan brings to the Romney ticket, it must start by attacking the person, making him less credible so he doesn't have an opportunity to sway voters by making clear what a Romney/Ryan ticket offers as remedies for the fiscal problems we face. Obama obviously doesn't want to address them, so he must attack Ryan before the Ryan/Romney Romney/Ryan campaign can articulate the issues and their proposed remedies.
4. Ryan is disciplined and stays on track; it's about policy. Similar to #3 above, Ryan is not likely to avoid talking about the issues, hoping instead to beat irrelevant talking points into the ground. Instead, he'll remain focused on the issues, articulating well their ideas for possible solutions. This is what Obama cannot do given is record over the past four years.
5. He'll appeal to voters in some swing states in the midwest.

Cons:

1. Is Ryan a complement to Romney or will he simply upstage Romney and expose Romney's lack of principle (or allowing the Obama campaign to belabor this point)? Unlike Romney, Ryan has a principled vision. Will Romney endorse it, which exposes his lack of one, or will he back away from it, which then begs the question of why he picked Ryan to begin with. 
2. As I noted here after the mid-term elections in 2010, it's easy to talk about cutting government in the abstract, but when it comes to explaining specifics, voters turn on you. Ryan discusses specifics, which gives the Obama campaign a huge stick with which to beat up on a Romney/Ryan campaign. 
3. Some speculate that Ryan makes Romney less attractive to voters in states like Florida and Virginia, but I don't buy it. Marco Rubio has done very well in Florida and he's as economically and socially conservative as Paul Ryan. But Rubio doesn't have a record like Ryan has, nor has he laid out specifics of how to deal with the fiscal problems we face like Ryan has. This will be an interesting race.

Why can't we have a better press corps and opinion writers?

Suppose a government-owned and operated enterprise does what they do best, which is lose tons of money by squandering scarce resources. (Never, ever, ever underestimate the importance of incentives. If I am not a residual claimant to the profits of an enterprise, I don't care whether it profits or loses money. I just want my paycheck.) In order to raise revenue to pay some of its debt, the government privatizes this company and you buy it . . . cheap. (Why not, it's a losing venture.)

After turning the company around and making it profitable, you sell it. Yes, you were able to utilize the same resources that the government had been squandering for the benefit of greedy bureaucrats and their political allies to finally create great value for the rest of society. You were rewarded for that in the form of higher profits, which increased the value of your firm. 

You are not in the business of running companies like this per se, but in salvaging currently unprofitable ones. Once you have it turned around it's time to sell. You do . . . and for a handsome profit. There is nothing illegal about what you did, and in fact, you did exactly what capitalism dictates. You profited by transforming resources from where they had been either unused or were being wasted into something that benefited society most. Your actions improved social welfare.

Now, you take those profits and use the same rules and laws that politicians legislated to protect their own wealth and the wealth of their friends and cronies and benefactors to keep it from being confiscated by people who, you guessed it, like to waste resources most. You deposit it into accounts in foreign countries that allow you to avoid paying huge capital gains tax on the sale of your business in another country. Whether this is just or unjust from a political perspective is irrelevant; you've simply used the same rules that protect anyone else in that country from having their wealth plundered by wasteful politicians and bureaucrats. They set up the rules and if the rules are unfair then change them. But don't villify people who simply use existing laws, the same laws that apply to everyone else, to avoid paying taxes.

Things happen, all beyond your control, though maybe not without your foresight that they might happen. It was this knowledge that was the impetus for you selling the company then. As a consequence of these changes, the value of your former company plummets. The buyer of your former company had at once also been a former government-owned and run enterprise. The managers of that firm might have expected to benefit from the crony capitalism so widely prevalent in their country, so might have had less an incentive to run it profitably. Are you obligated to refund their losses because they either lacked the same knowledge and information you had, or because they didn’t have the incentive to operate it profitably like you did? Might they have aided in the downfall of the value of their acquision?

What if you, a specialist in expressionist art, come across what you believe to be an original, but lost, Van Gogh while stopping at a garage sale. The owner sells you the painting for $50 and you then turn around and auction it off for $50 million. Are you obligated to inform the owner of the potential value of that piece of art? What if you purchased a house a year before the peak of the housing bubble and flipped it right at the peak, pretty certain that a bubble existed and it was ready to pop. Again, are you obligated to refund the difference between the price at which you sold the house and its current deflated value simply because the buyer, who probably wanted to flip it too, didn’t understand fundamental values? If so, is there any incentive for people to become informed about the fundamental value of assets? 

I am not fully informed about the Bain Capital acquisition of Seat Pagine Gaille, but from everything I read in this story of it, my metaphors above explain things pretty much the same. There may be more to it, I don't know, but it seems that Bain Capital did nothing more than expose the gross inefficiencies of the Italian government running enterprises and was able to profit from it when the Italian government decided to privatize some of them. Just like the speculators forced the collapse of the Malaysian and Indonesian currencies (and government), exposing the political corruption and cronyism in those countries, Bain capital did the Italian people a service by exposing the flaws in the corrupt political system of that country and in the process profited from it. 

Dana Milbank of the Washington Post defends crony capitalism and vilifies true capitalism. Maybe he doesn't understand public choice and the importance of incentives. 

Again, I'm not an apologist for Romney the candidate - I actually think he's weak and unprincipled. But I will defend capitalism and what Romney did at Bain Capital. I don't have full knowledge of what Bain Capital did, but neither does the media and people like Milbank. Until we know differently, Romney and Bain Capital served society well. It is quite possible, and given his political heritage highly probable, that Romney and Bain Capital unjustly profited from political connections. But no one has revealed anything unscrupulous yet, and so until they do I will defend Bain Capital just as I will defend any private equity firm and the crucial role they have in allocating resources more efficiently. 

The hens are coming home to roost. (I don't even know what that means, but this isn't good.)

What has been known for decades is coming to fruition: Social Security is a sucker's bet. (I've never understood why Social Security is regarded as the "crowning achievement" of the New Deal. And since Medicare is worse off than Social Security, we can expect even worse outcomes with that.)

"Future generations are going to do worse because either they are going to get fewer benefits or they are going to pay higher taxes," said Eugene Steuerle, a former Treasury official who has studied the issue as a fellow at the Urban Institute.

The table below, taken from here, shows the miserable return people beginning with the baby boom generation can expect to earn.

And of course we can expect one of the biggest rent-seeking institutions to promote Social Security as a free lunch.

But returns alone don't fully explain the value of Social Security, which has features that aren't available in typical private-sector retirement plans, said David Certner, legislative policy director for AARP.

Spouses can get benefits even if they never earned wages. Children can get benefits if they have a working parent who dies. People who are too disabled to work can get benefits for life.

- - - 

"You are buying this lifetime inflation-protected benefit that you can never run out of and that will always be there for you," Certner said. "It protects your spouse, protects your family and protects you from disability."

That may be true, but there are plenty of lower cost means to most people of achieving this same objective.  

And where are we headed?

Even with low tax rates, Social Security could afford to pay benefits in the early years because there were more workers paying the tax for each person receiving benefits than there are today. In 1960, there were 4.9 workers paying Social Security taxes for each person getting benefits. Today, there are about 2.8 workers for each beneficiary, a ratio that will drop to 1.9 workers by 2035, according to projections by the Congressional Budget Office.

About 56 million people now collect Social Security benefits, and that number is projected to grow to 91 million in 2035. Monthly benefits average $1,235 for retired workers and $1,111 for disabled workers. Social Security provides most older Americans a majority of their income. About one-quarter of married couples and just under half of single retirees rely on Social Security for 90 percent or more of their income, according to the Social Security Administration.