Tag Archives: economics

Wealth Taxes and Irrationality

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In their house editorial regarding the degree of wisdom of wealth taxes, the WSJ‘s editors noted this regarding a collection of celebrity economists’ position on such taxes.

M Zucman and his fellow French celebrity economists, Thomas Piketty and Emmanuel Saez, don’t believe high taxes and a generous welfare state materially affect the incentives to work and invest. When people respond predictably to the perverse incentives that politicians create, French economists claim they are acting irrationally. So with a wealth tax.

Stipulate that’s true, and that people do act irrationally in response to incentives, perverse or otherwise. It’s still how people behave, even the wealthy.

Zucman and his fellows insist on living in their idealized fantasy world, rather than handling reality.

Featherbedding in Trucking

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It’s coming. In fact, it’s already being pushed for in California.

Driverless trucks have been operating for some time in Texas and other States across the south, moving the middle mile—the travel from warehouse/depot to warehouse/depot. Human drivers handle the first and last mile, loading and hooking up/unhooking and parking and unloading freight trailers at the start and destination sites. Especially at the destination, since driverless trucks still can’t back up (that’s skill that’s much harder to teach a computer to do).

With this empirically demonstrated capability and safety as backdrop, California enacted state regulations that removed a ban on driverless trucks weighing 10,001 pounds or more, and allowed testing and deployment of such vehicles through a permit process. Naturally, unions don’t like that, and the International Brotherhood of Teamsters in California sued the State’s DMV over those regulations. The Teamsters’ plaint:

The deployment of Self-Driving Trucks, authorized by the regulatory changes, has the potential to eventually wipe out the jobs of more than 200,000 employee semi-truck drivers working across California[.]

The union doesn’t care that there is no intrinsic right for anyone to drive a truck for a company or for himself. Hiring, or not, truck drivers is strictly a business decision as companies seek to hold down the cost of their delivery operations, and as customer companies seek to hold down costs of getting deliveries. Driverless trucks are cheaper to operate than driver-ed trucks: as recently as 2025, roughly 44% of the cost of operating a truck was in driver wages and benefits. Robots don’t have much need for those.

Peter Finn, the Teamsters’ Vice President At-Large, added that communities want to see investments in people and middle-class jobs against the broader backdrop of artificial-intelligence growth. Again, this is a business decision, not an inherent right to any particular job in the pursuit of those investments.

If the union succeeds in scotching those California regulations, its next move will be to push for literal featherbedding: a human in the driverless tractor pulling those freight trailers, even though they’re not needed for any reason other than fueling union coffers. And artificially elevating costs to trucking companies, companies receiving truckers’ deliveries, and us American consumers as the end buyer of the trucked goods.

Points of Fundamental Economics

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President Donald Trump (R) has ordered a conversion of the Navy’s carriers from electronic catapults to steam catapults for launching its aircraft. There are a couple of points about that.

Chief of Naval Operations Admiral Daryl Caudle:

If we were to go back to steam and hydraulics with the elevators, we need to really understand the total cost of that. That will be a significant design change.

Absolutely. Any design change, especially one done after production has begun, has costs, beginning with the cost of removing the hardware or the complete system that’s being changed, designing the replacement hardware or system to fit into the space—or more expensively, also altering that space to accommodate the replacement—and building and installing the replacement. In the present case, an added cost results from the fact that no one makes steam catapult systems anymore. These have to be gutsed up from scratch, including (re)building the factories that make them.

On the other hand, it’s critical to not be married to sunk costs in considering a change. Those costs are sunk for a reason: they’ve already been incurred and won’t be recouped. They’re expensive to walk away from, but it can be even more expensive to continue sinking money into a suboptimal system just because money has already been spent on it.

Better is the enemy of good enough is certainly true, but there’s an equally valid flip side of that: good enough can’t be allowed to be the end game; better really is an improvement. Existing sunk costs can’t be allowed to be in the way of better. What matters is long term performance of the two systems, the good enough vs the better. Cost is only one component of that assessment, and cost is more than just dollars. In the present case, cost includes which system gets more aircraft—manned or unmanned—into the air at the faster rate with the longest time between breakdown and the shortest time to repair.

And a bonus point, about which Acting Navy Secretary Hung Cao had this in his memo to the Navy:

To be clear, the debate on whether we do this has ended. Our task now is to provide the plan on how to implement.

Slow-walking the implementation or other forms of passive resistance can only run up the costs of the implementation, and it should get those resisters dismissed from the Navy or fired from their civilian DoD jobs.

Rahm Emanuel’s Latest Installment

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Over the last several weeks, Progressive-Democratic Party Presidential candidate hopeful Rahm Emanuel has been publishing sections of his campaign platform in The Wall Street Journal. His latest installment is here. Emanuel talks a good game, but as Long Time Reader might expect, I have thoughts on it.

The carried-interest rule suggests that those in the business of buying and selling companies need the incentive of a special tax break. They don’t.

This is a conveniently plausible assertion, but it’s wholly unsubstantiated. Let Emanuel supply the facts and logic underlying his claim.

To be effective, reforms will need to work hand in hand with an enforceable international floor.

Absolutely not. Such a move gives foreign governments too much influence over our domestic economic policies. The only legitimate “international floor” needs no enforcement mechanism; the floor is however low individual nations let their domestic tax policies go and stay competitive. Progressive-Democrats spend ‘way too much time and energy trying to limit competition.

[R]aise the capital-gains rate closer to the rate that prevailed during the late 1980s, when it was the same as the tax on ordinary income. … You can’t claim that narrowing the gap between passive income and earned income would undermine the incentive to invest when we saw robust growth in exactly those conditions.

Yes, I can. Emanuel first needs to prove–or at least provide evidence–that the growth under those conditions would not have been even more robust had that gap not been narrowed. Showing a counterfactual is hard, but Emanuel isn’t even trying.

[E]liminate the stepped-up basis that allows them to pass fortunes from one generation to the next free from capital-gains taxes. This policy has nothing to do with driving economic growth and serves only to preserve inherited wealth.

 Contra Emanuel, there’s nothing wrong with a family preserving its wealth. Aside from that, it’s not for Government, or for Progressive-Democrats who want to run Government, to dictate to the rest of us the proper way to handle our wealth.

It’s instructive, too, that Emanuel is not proposing even working toward a single low (in the range, I suggest, of 10-15%) tax on all income regardless of source (viz., those capital gains), with no deductions, credits, subsidies, loopholes, or other froo-froo.

In that environment, private-equity fund managers, firefighters, police officers, and teachers–and Warren Buffet and his (ex-?) secretary–all would be paying the same rates, with the rich still having their bigger bills.

Know Better Socialism Made Manifest

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Michigan’s Socialist Progressive-Democratic Party candidate for Senator, Abdul el-Sayed, is a poster child for socialism’s Know Better ideology. He’s claiming now that

[m]ost billionaires don’t park their money making more businesses. They park their money in the stock market. That is not meaningfully investing in opportunity. It’s just investing in other billionaires.

Not only is el-Sayed completely ignorant about how rich folks gained their wealth generally, he’s completely ignorant of how they grow their wealth. (I’ll leave aside the shibboleth that they already have “enough” wealth and shouldn’t be looking to earn more.)

He’s also insisting he’s the primary, if not sole, arbiter of what constitutes meaningful investing. The folks who got their wealth by investing in their own way in areas of their choosing don’t know as much about it as he does, and so he must direct their investing for them.

El-Sayed’s position is insulting to us average Americans in two ways.  One is that we’re too stupid to manage our own financial affairs; his Socialist Government must do that for us. The other is that we’re stupid enough that we cannot see his self-absorbed arrogance in representing himself as Knowing Better how the Evil Rich should deploy their assets than do those Evil Rich, or that he won’t be coming after us later.

Bonus third insult: that we’re stupid enough to believe he’s not as economically ignorant as he really is.