Ken Houghton

Consider this a bright, cheerful post, as opposed to my next one.

As long as TAPPED is talking about "classism," let's recall that the easy solution was Common Knowledge by the early 1980s:

When I was in school I ran with kid down the street
But I watched him burn himself up on bourbon and speed
But I was smarter than most and I could choose
Learned to talk like the man on the six o'clock news

Always keep in mind, of course, that a thick accent comes in handy, especially if you're trying to be underestimated. But that's not generally in the first round.

Ken Houghton

Consider this a bright, cheerful post, as opposed to my next one.

As long as TAPPED is talking about "classism," let's recall that the easy solution was Common Knowledge by the early 1980s:

When I was in school I ran with kid down the street
But I watched him burn himself up on bourbon and speed
But I was smarter than most and I could choose
Learned to talk like the man on the six o'clock news

Always keep in mind, of course, that a thick accent comes in handy, especially if you're trying to be underestimated. But that's not generally in the first round.

A research review by: Divorced one like Bush

Introduction: This review was initiated after reading the report linked at the 25 indicators post. A review of the data regarding accepted economic performance indicators for business cycle peaks of year 2000 and 2008 is presented along with a discussion of the relevance to the strategy of the Wealthy in winning the War of Class. In short, the Wealthy are irrational in their strategy in fighting the War of Class and are in fact losing the war for everyone.

The data:

The growth rate in median family income, however, was slower between the business-cycle peaks of 2000 and 2007 (0.1 percent per year) than it had been between the two earlier peaks in 1989 and 2000 (0.9 percent per year).
Labor productivity, meanwhile, grew more rapidly in the 2000s business cycle (2.5 percent) than it did in the preceding cycle (2.0 percent).
Economic growth was faster over the 1990s business-cycle (3.1 percent per year) than it was over the 2000s cycle (2.3 percent).
...but the 1990s cycle still produced a higher personal savings rate (5.6 percent of disposable personal income) than the 2000s cycle (1.8 percent of disposable personal income).

Another way to view the data is to align each point with the year of origin.
Early years: 2% productivity growth with 0.9% income growth, 5.6 savings, 3.5%economic growth
Versus Bush years: 2.5% productivity growth, .01% income growth, 1.8% savings, 2.3% economic growth.

Analysis: Going forward I will refer to two groups fighting in the Class War. The subject of this study will be called the Wealthy. The Wealthy survive by making money from money. That is the accepted opinion. Though this report suggests that even the top 1% were earning more from wages each year until it reverses in 2000. Quote:

The lower end of this group is not seeing an increase of income from wages. But look at the change in the top 1% and the top 0.1%. They have the greatest increase of their income coming from wages. The entire top 5% sees this, but it is the very top that is seeing a doubling (32 to 63% for the top 1%) and tripling (18.1 to 58.2 for the top 0.1%) of the percentage from wages. (see chart)

The group the Wealthy are fighting will be called the Enemy. The Enemy survive by making money from selling their labor which is tied to productivity.

For all the people who are fighting a class war, looking at the means by which both sides make money and thinking that both want to win it for the long haul, it appears that each side has been losing under the Wealthy's strategy and tactics used for winning the war. For the Wealthy who make money from money, I assume a higher annual average economic growth would be more beneficial as it means more wealth being created over time, but they have produced lower growth. They appear to have won when the Enemy was able to sell their labor for a higher share of productivity. In fact, it appears that the important factor to the Wealthy winning the war is how much of the productivity gains go to the Enemy instead of how much more work the Wealthy can get out of the Enemy. There appears to be an inverse relationship of income and productivity to the success of the Wealthy in the war. As the share of productivity going to income of the Enemy goes down, economic activity declines. That is, as the Wealthy take more of the productivity gains as a means to win the war, they are in actuality hurting their war efforts. A decline of the economic activity is a war losing results for the Wealthy.

Conclusion: The Wealthy are closer to winning what they want when they let the Enemy win. That they have continued the same strategy during declining indicators and have seen similar battle results in the past (the battle known as the Roaring 20's comes to mind) suggests that they are not being rational. For the Enemy of the Wealthy, well I guess there is some solace in the thought that the Wealthy are ultimately beating themselves in that they are driving down economic growth. I am reminded of the great wisdom of the infamous class warrior Billy Ray Valentine:

“You know, it occurs to me that the best way you hurt rich people is by turning them into poor people.”

Of course unexpected events can change the momentum and ultimately the strength of either side. For example, a banking crisis. (An event for which I can find no research that supports one has ever been caused by the tactics of the armies of the Immigrant or Indigent. ) Such an event changes the emphasis of the theater of the war from the broader, larger operation of the market place which requires an understanding of the rules of economic theory and historical economic data to the limited and smaller theater of the halls of government with the need to understand the rules of political theory and historical political data. For either side, the most successful campaign would take into consideration the results of the market place war front when fighting in the halls of government war front.

There is a paradox to the Wealthy winning any battle in the halls of government theater. That they do not heed the historical record of battles within both theaters leads to poor tactics. The Wealthy institute tactics based on non-rational analysis moving them further from their desired goal. Thus, a possible strategy for the Wealthy's Enemy could be to focus on the Wealthy's lack of rational analysis. It might be possible for the Enemy to make the Wealthy aware of their self defeating results. Showing the Wealthy that they were more successful when the Enemy received approximately 50% of the productivity gains could be a basis for a treaty. There is data available to the Enemy that suggests when they received gains equal to the rise of productivity, the growth of economic activity was even greater than the period of this study.

To summarize: The Wealthy are poor Class War strategists. They are self defeating in such a way that they remove all ability for either side to win the Class War. The Wealthy must let the Enemy win the war in order for the Wealthy to win. I would caution that any approach toward a treaty by the Enemy to the Wealthy must be taken with care. It is not certain as to whether the Wealthy have the strength of character to accept that they are failures. By evidence of their tactics in the face of the data, forming a treaty with the Wealthy who act irrationally will be met with great frustration by the Enemy.

A research review by: Divorced one like Bush

Introduction: This review was initiated after reading the report linked at the 25 indicators post. A review of the data regarding accepted economic performance indicators for business cycle peaks of year 2000 and 2008 is presented along with a discussion of the relevance to the strategy of the Wealthy in winning the War of Class. In short, the Wealthy are irrational in their strategy in fighting the War of Class and are in fact losing the war for everyone.

The data:

The growth rate in median family income, however, was slower between the business-cycle peaks of 2000 and 2007 (0.1 percent per year) than it had been between the two earlier peaks in 1989 and 2000 (0.9 percent per year).
Labor productivity, meanwhile, grew more rapidly in the 2000s business cycle (2.5 percent) than it did in the preceding cycle (2.0 percent).
Economic growth was faster over the 1990s business-cycle (3.1 percent per year) than it was over the 2000s cycle (2.3 percent).
...but the 1990s cycle still produced a higher personal savings rate (5.6 percent of disposable personal income) than the 2000s cycle (1.8 percent of disposable personal income).

Another way to view the data is to align each point with the year of origin.
Early years: 2% productivity growth with 0.9% income growth, 5.6 savings, 3.5%economic growth
Versus Bush years: 2.5% productivity growth, .01% income growth, 1.8% savings, 2.3% economic growth.

Analysis: Going forward I will refer to two groups fighting in the Class War. The subject of this study will be called the Wealthy. The Wealthy survive by making money from money. That is the accepted opinion. Though this report suggests that even the top 1% were earning more from wages each year until it reverses in 2000. Quote:

The lower end of this group is not seeing an increase of income from wages. But look at the change in the top 1% and the top 0.1%. They have the greatest increase of their income coming from wages. The entire top 5% sees this, but it is the very top that is seeing a doubling (32 to 63% for the top 1%) and tripling (18.1 to 58.2 for the top 0.1%) of the percentage from wages. (see chart)

The group the Wealthy are fighting will be called the Enemy. The Enemy survive by making money from selling their labor which is tied to productivity.

For all the people who are fighting a class war, looking at the means by which both sides make money and thinking that both want to win it for the long haul, it appears that each side has been losing under the Wealthy's strategy and tactics used for winning the war. For the Wealthy who make money from money, I assume a higher annual average economic growth would be more beneficial as it means more wealth being created over time, but they have produced lower growth. They appear to have won when the Enemy was able to sell their labor for a higher share of productivity. In fact, it appears that the important factor to the Wealthy winning the war is how much of the productivity gains go to the Enemy instead of how much more work the Wealthy can get out of the Enemy. There appears to be an inverse relationship of income and productivity to the success of the Wealthy in the war. As the share of productivity going to income of the Enemy goes down, economic activity declines. That is, as the Wealthy take more of the productivity gains as a means to win the war, they are in actuality hurting their war efforts. A decline of the economic activity is a war losing results for the Wealthy.

Conclusion: The Wealthy are closer to winning what they want when they let the Enemy win. That they have continued the same strategy during declining indicators and have seen similar battle results in the past (the battle known as the Roaring 20's comes to mind) suggests that they are not being rational. For the Enemy of the Wealthy, well I guess there is some solace in the thought that the Wealthy are ultimately beating themselves in that they are driving down economic growth. I am reminded of the great wisdom of the infamous class warrior Billy Ray Valentine:

“You know, it occurs to me that the best way you hurt rich people is by turning them into poor people.”

Of course unexpected events can change the momentum and ultimately the strength of either side. For example, a banking crisis. (An event for which I can find no research that supports one has ever been caused by the tactics of the armies of the Immigrant or Indigent. ) Such an event changes the emphasis of the theater of the war from the broader, larger operation of the market place which requires an understanding of the rules of economic theory and historical economic data to the limited and smaller theater of the halls of government with the need to understand the rules of political theory and historical political data. For either side, the most successful campaign would take into consideration the results of the market place war front when fighting in the halls of government war front.

There is a paradox to the Wealthy winning any battle in the halls of government theater. That they do not heed the historical record of battles within both theaters leads to poor tactics. The Wealthy institute tactics based on non-rational analysis moving them further from their desired goal. Thus, a possible strategy for the Wealthy's Enemy could be to focus on the Wealthy's lack of rational analysis. It might be possible for the Enemy to make the Wealthy aware of their self defeating results. Showing the Wealthy that they were more successful when the Enemy received approximately 50% of the productivity gains could be a basis for a treaty. There is data available to the Enemy that suggests when they received gains equal to the rise of productivity, the growth of economic activity was even greater than the period of this study.

To summarize: The Wealthy are poor Class War strategists. They are self defeating in such a way that they remove all ability for either side to win the Class War. The Wealthy must let the Enemy win the war in order for the Wealthy to win. I would caution that any approach toward a treaty by the Enemy to the Wealthy must be taken with care. It is not certain as to whether the Wealthy have the strength of character to accept that they are failures. By evidence of their tactics in the face of the data, forming a treaty with the Wealthy who act irrationally will be met with great frustration by the Enemy.

In honor of Economy Day at the DNC, the Tax Foundation sent me an e-mail trying to convince me that the corporate income tax is terribly unfair to average Americans. The pitch is based on a tax incidence study that claims that in the lower quintile of cash incomes, personal income taxes averaged $171 in 2004, whereas the effective bite of corporate income taxes was $271. Including payroll and excise taxes, they figure that the bottom 20 percent paid on average $1,684. All other figures in the post are from the Tax Foundation.

As an aside, at least the estate tax burden for the bottom quintile was estimated to be $0. For the second quintile, the estate tax burden was $0. At the median, the burden was $0. In the fourth quintile (i.e. up to the 80th income percentile), the average estate tax burden, according to the Tax Foundation, was $0. By advanced mathematics, the maximum estate tax burden for the bottom 80% of the U.S. income distribution was — you guessed it — $0. That goes to show the power of marketing.

Before you start wringing your hands about the corporate income tax shafting the poor, a working paper [PDF] that serves as the source of the statistics is honest enough to note that the net fiscal incidence is the difference between government spending and tax payments. The news item only gives the payment side, but the paper actually provides the benefits and allows calculation of the net incidence.

It turns out that by the Tax Foundation economists' calculations, that diabolical tax system took that $1,684 only to return $24,860 in spending to bottom-quintile earners, including expenditures on what the authors tally as public goods. Average net benefits don't turn negative until the fourth income quintile, and the top quintile, with the largest net "burden," faced an effective total (average) tax rate of 34.55 percent (24.25% federal). That includes income, payroll, excise, property, and estate taxes at all levels, again in the account the Tax Foundation is peddling.

Some of you may think that's unconscionable confiscation, but I prefer to think of the working well-to-do and the rich as having a glass that's right around 2/3 full. And even without being anywhere close to the nosebleed sections of the distribution, I can tell you that if you take the pessimistic view of the tax incidence on the well-to-do and aren't in the top fifth, I'm not trading places to free myself of that "burden." Just saying.

In honor of Economy Day at the DNC, the Tax Foundation sent me an e-mail trying to convince me that the corporate income tax is terribly unfair to average Americans. The pitch is based on a tax incidence study that claims that in the lower quintile of cash incomes, personal income taxes averaged $171 in 2004, whereas the effective bite of corporate income taxes was $271. Including payroll and excise taxes, they figure that the bottom 20 percent paid on average $1,684. All other figures in the post are from the Tax Foundation.

As an aside, at least the estate tax burden for the bottom quintile was estimated to be $0. For the second quintile, the estate tax burden was $0. At the median, the burden was $0. In the fourth quintile (i.e. up to the 80th income percentile), the average estate tax burden, according to the Tax Foundation, was $0. By advanced mathematics, the maximum estate tax burden for the bottom 80% of the U.S. income distribution was — you guessed it — $0. That goes to show the power of marketing.

Before you start wringing your hands about the corporate income tax shafting the poor, a working paper [PDF] that serves as the source of the statistics is honest enough to note that the net fiscal incidence is the difference between government spending and tax payments. The news item only gives the payment side, but the paper actually provides the benefits and allows calculation of the net incidence.

It turns out that by the Tax Foundation economists' calculations, that diabolical tax system took that $1,684 only to return $24,860 in spending to bottom-quintile earners, including expenditures on what the authors tally as public goods. Average net benefits don't turn negative until the fourth income quintile, and the top quintile, with the largest net "burden," faced an effective total (average) tax rate of 34.55 percent (24.25% federal). That includes income, payroll, excise, property, and estate taxes at all levels, again in the account the Tax Foundation is peddling.

Some of you may think that's unconscionable confiscation, but I prefer to think of the working well-to-do and the rich as having a glass that's right around 2/3 full. And even without being anywhere close to the nosebleed sections of the distribution, I can tell you that if you take the pessimistic view of the tax incidence on the well-to-do and aren't in the top fifth, I'm not trading places to free myself of that "burden." Just saying.

In the grand tradition of "pulled from comments," I'm pulling this one—from Brad DeLong's blog, in response to this post:

...Manzi does not seem to have a consistent view of the concavity of instantaneous indirect utility functions. He argues that it would be absurd to consume the proceeds of the IPO of a successful startup yet he argues that higher taxation of said proceeds will have a large effect on the required minimum probability of success. If he can come up with a utility function which has both of these properties, he might convince someone who cares about economic theory (not typing at the moment). If he further finds a utility function consistent with the data on risk premia and intertemporal substitution he might convince more than one such person. If he can get the sign of the effect the one he wants without ignoring the benefit for people who tried and failed to be entrepreneurs of middle class tax cuts he will convince many.

If he assumes that expected wealth calculations are OK when evaluating whether people will start companies but just idiotic when deciding how quickly they will consume the proceeds, he isn't an economic theorist (not that I mean that as a criticism).

The source of the comment is, for those who did not follow the link, Robert Waldmann.

In the grand tradition of "pulled from comments," I'm pulling this one—from Brad DeLong's blog, in response to this post:

...Manzi does not seem to have a consistent view of the concavity of instantaneous indirect utility functions. He argues that it would be absurd to consume the proceeds of the IPO of a successful startup yet he argues that higher taxation of said proceeds will have a large effect on the required minimum probability of success. If he can come up with a utility function which has both of these properties, he might convince someone who cares about economic theory (not typing at the moment). If he further finds a utility function consistent with the data on risk premia and intertemporal substitution he might convince more than one such person. If he can get the sign of the effect the one he wants without ignoring the benefit for people who tried and failed to be entrepreneurs of middle class tax cuts he will convince many.

If he assumes that expected wealth calculations are OK when evaluating whether people will start companies but just idiotic when deciding how quickly they will consume the proceeds, he isn't an economic theorist (not that I mean that as a criticism).

The source of the comment is, for those who did not follow the link, Robert Waldmann.

This NY Times piece is making a comparison to yesteryears when those mansions in Newport, RI were built. It starts with Sanford I. Weil of Citigroup and how he compares to Andrew Carnegie.

First, how does this period compare:

Only twice before over the last century has 5 percent of the national income gone to families in the upper one-one-hundredth of a percent of the income distribution — currently, the almost 15,000 families with incomes of $9.5 million or more a year, according to an analysis of tax returns by the economists Emmanuel Saez at the University of California, Berkeley and Thomas Piketty at the Paris School of Economics. (I have posted from their data in the past.) Such concentration at the very top occurred in 1915 and 1916, as the Gilded Age was ending, and again briefly in the late 1920s, before the stock market crash.

Mr Weil view:

“I once thought how lucky the Carnegies and the Rockefellers were because they made their money before there was an income tax,” “I want to give away my money rather than have somebody take it away,”

We have Mr. Kenneth C. Griffin, who received more than $1 billion last year as chairman of a hedge fund, the Citadel Investment Group, declared:

“The money is a byproduct of a passionate endeavor.”
“We have helped to create real social value in the U.S. economy,” he said. “We have invested money in countless companies over the years and they have helped countless people.” “The income distribution has to stand,” Mr. Griffin said, adding that by trying to alter it with a more progressive income tax, “you end up in problematic circumstances. In the current world, there will be people who will move from one tax area to another. I am proud to be an American. But if the tax became too high, as a matter of principle I would not be working this hard.”

Such positions are summed up with:

“Carnegie made it abundantly clear that the centerpiece of his gospel of wealth philosophy was that individuals do not create wealth by themselves,” said David Nasaw, a historian at City University of New York. and the author of “Andrew Carnegie” (Penguin Press). “The creator of wealth in his view was the community, and individuals like himself were trustees of that wealth.”

Really? They are the Trustees?

Can it be anymore egocentric? Why yes they can:

Lew Frankfort, chairman and chief executive of Coach the manufacturer and retailer of trendy upscale handbags, who was among the nation’s highest paid chief executives last year, recaps the argument. “The professional class that developed in business in the ’50s and ’60s,” he said, “was able as America grew at very steady rates to become industry leaders and move their organizations forward in most categories: steel, autos, housing, roads.”

That changed with the arrival of “the technological age,” in Mr. Frankfort’s view. Innovation became a requirement, in addition to good management skills — and innovation has played a role in Coach’s marketing success. “To be successful,” Mr. Frankfort said, “you now needed vision, lateral thinking, courage and an ability to see things, not the way they were but how they might be.” (Like this was not needed in the past?)

Please note, Mr. Frankfort is not emphasizing the manufacturing, he is emphasizing the marketing.

What would be the “problematic circumstances” of being more progressive in the tax structure? Why do they not want to pay the help that they acknowledged got them where they are? Even in the good old days of Carnegie, paying the help was not considered a charitable thing to do.

I have posted that things have changed. We make money differently today. The article notes:

The Glass-Steagall Act of 1933 outlawed the mix, blaming conflicts of interest inherent in such a combination for helping to bring on the 1929 crash and the Depression. The pen displayed in Mr. Weill’s hallway is one of those Mr. Clinton used to revoke Glass-Steagall in 1999. He did so partly to accommodate the newly formed Citigroup, whose heft was necessary, Mr. Weill said, if the United States was to be a powerhouse in global financial markets.

The article does offer counter opinions to this self aggrandizement. I'll leave it to you to read the rest except for this which I think sums up the counter opinion (in a more polite manor than I would have):

“I don’t see a relationship between the extremes of income now and the performance of the economy,” Paul A. Volcker, a former Federal Reserve Board chairman, said in an interview, challenging the contentions of the very rich that they are, more than others, the driving force of a robust economy.

This NY Times piece is making a comparison to yesteryears when those mansions in Newport, RI were built. It starts with Sanford I. Weil of Citigroup and how he compares to Andrew Carnegie.

First, how does this period compare:

Only twice before over the last century has 5 percent of the national income gone to families in the upper one-one-hundredth of a percent of the income distribution — currently, the almost 15,000 families with incomes of $9.5 million or more a year, according to an analysis of tax returns by the economists Emmanuel Saez at the University of California, Berkeley and Thomas Piketty at the Paris School of Economics. (I have posted from their data in the past.) Such concentration at the very top occurred in 1915 and 1916, as the Gilded Age was ending, and again briefly in the late 1920s, before the stock market crash.

Mr Weil view:

“I once thought how lucky the Carnegies and the Rockefellers were because they made their money before there was an income tax,” “I want to give away my money rather than have somebody take it away,”

We have Mr. Kenneth C. Griffin, who received more than $1 billion last year as chairman of a hedge fund, the Citadel Investment Group, declared:

“The money is a byproduct of a passionate endeavor.”
“We have helped to create real social value in the U.S. economy,” he said. “We have invested money in countless companies over the years and they have helped countless people.” “The income distribution has to stand,” Mr. Griffin said, adding that by trying to alter it with a more progressive income tax, “you end up in problematic circumstances. In the current world, there will be people who will move from one tax area to another. I am proud to be an American. But if the tax became too high, as a matter of principle I would not be working this hard.”

Such positions are summed up with:

“Carnegie made it abundantly clear that the centerpiece of his gospel of wealth philosophy was that individuals do not create wealth by themselves,” said David Nasaw, a historian at City University of New York. and the author of “Andrew Carnegie” (Penguin Press). “The creator of wealth in his view was the community, and individuals like himself were trustees of that wealth.”

Really? They are the Trustees?

Can it be anymore egocentric? Why yes they can:

Lew Frankfort, chairman and chief executive of Coach the manufacturer and retailer of trendy upscale handbags, who was among the nation’s highest paid chief executives last year, recaps the argument. “The professional class that developed in business in the ’50s and ’60s,” he said, “was able as America grew at very steady rates to become industry leaders and move their organizations forward in most categories: steel, autos, housing, roads.”

That changed with the arrival of “the technological age,” in Mr. Frankfort’s view. Innovation became a requirement, in addition to good management skills — and innovation has played a role in Coach’s marketing success. “To be successful,” Mr. Frankfort said, “you now needed vision, lateral thinking, courage and an ability to see things, not the way they were but how they might be.” (Like this was not needed in the past?)

Please note, Mr. Frankfort is not emphasizing the manufacturing, he is emphasizing the marketing.

What would be the “problematic circumstances” of being more progressive in the tax structure? Why do they not want to pay the help that they acknowledged got them where they are? Even in the good old days of Carnegie, paying the help was not considered a charitable thing to do.

I have posted that things have changed. We make money differently today. The article notes:

The Glass-Steagall Act of 1933 outlawed the mix, blaming conflicts of interest inherent in such a combination for helping to bring on the 1929 crash and the Depression. The pen displayed in Mr. Weill’s hallway is one of those Mr. Clinton used to revoke Glass-Steagall in 1999. He did so partly to accommodate the newly formed Citigroup, whose heft was necessary, Mr. Weill said, if the United States was to be a powerhouse in global financial markets.

The article does offer counter opinions to this self aggrandizement. I'll leave it to you to read the rest except for this which I think sums up the counter opinion (in a more polite manor than I would have):

“I don’t see a relationship between the extremes of income now and the performance of the economy,” Paul A. Volcker, a former Federal Reserve Board chairman, said in an interview, challenging the contentions of the very rich that they are, more than others, the driving force of a robust economy.