Monday, October 8, 2012

Addicting Misinformation

Articles like the one I'm about to rant about drive me completely apoplectic.

First, I will admit that "Addicting Info" is - to be fair to my own sanity - one of the most unabashedly biased "leftist" blogs on the web and is staffed by some of the most ignorant amateurs out there, so I probably shouldn't care that much, but this article has over 7,000 "likes" on Facebook and not a word of it is true or even particularly sane.

I don't really want to give it any further traffic, so I will simply copy & paste the article here, with a few highlighted points of incredible stupidity (emphasis mine). It's not very long anyway. One Nathaniel Downes (about whose credentials I cannot currently find a shred of viable information) writes:
"Across Europe, the failure of austerity is clear. However with the weakness of the Eurozone’s de-centralized government apparent, France took upon itself a very different path to rectifying its financial woes. Instead of cutting services, punishing its population for the excesses of the élite, France has taken a page out of history, and taking the old tactic of raising its taxes.

The new tax rates top off at 75% of income earned over $1 million euro (approximately $1.3 million USD) for individuals. Some economists are quick to proclaim that such a tax rate would cause the economic conditions to become worse and that it sends a message that France does not like the rich and is not open for business.

This of course is nonsense. France, like many nations, has a tax penalty for taking money out of the country. France also utilizes a value added tax on goods going into the country. This means if a business decides on moving, to say Africa, to avoid the higher taxes, it would find any of its goods at a severe penalty when they returned to sell their goods and services to one of the largest economies in the world. Any business which decides on not selling to the market, of course, is being stupid. They are doing the metaphorical cutting off of their nose to spite their face. Every business can be replaced, so if a market is there, a company will come to fill it.

Instead of being anti-business or anti-rich, it is instead very pro-business. Now a business cannot waste its resources in supporting overpriced leisure-rich. Instead, the businesses which for invest in expansion, in its customers, and in its employees will find themselves rewarded. This becomes a very business friendly environment, companies which work in France will be very pro-growth. This will in turn expand their owners fortunes and overall wealth.

This is not a record for taxes, the United States once sported a 94% income tax rate. What this is, however, is a rejection of the Chicago and Austrian school of economics which have dominated the world for the past 40 years, and an embrace of the American school of economics, a school which has been sorely missing from the austerity debate."
Let that sink in for a minute.

Here's my response, which I posted to as a comment on the article itself. Here I will also add links so that my points are supported:
This has to be the dumbest, most poorly researched or argued article I have seen in years.

1. "Austerity" hasn't actually been attempted in nearly any part of Europe, and even to the extent that anyone could claim it exists even in Greece, it is overwhelmingly comprised of further economy-crippling tax increases and levies on incomes, goods & services, imports and everything else... ALL of which make people worse off and takes more money out of individual's hands, giving it to politicians to spend instead (which is largely why this isn't working), and the few instances where spending is being "cut" are either roll-backs in growth or things like raising the retirement age before social security benefits can be collected, selling *some* of the thousands of state-owned businesses and assets to cronies, and limiting or eliminating bonus payments/freezing public sector wage increases.

NO PART of this is a reduction in state control over the economy in Greece - or in Spain, or France for that matter, and nobody else has done anything but TALK about "austerity".

It is one of the most ludicrous things in the world to engage in policies that no reasonable person would call "austere" and then declare austerity a failure when raising taxes on everything under the sun and exploding Keynesian stimulus spending doesn't work to bring about prosperity.

So that's retarded... and it brings me to point #2.

And no, that Krugman quote is not out of context.
2. The Monetarist "Chicago School" had some influence 40 years AGO, but hardly has any influence on American policies now - and barely had any influence worldwide any way... but more importantly, the Austrian School has had ABSOLUTELY NO INFLUENCE over policy at any point.

You could discover this if you took two goddamn seconds to look at what Austrian School economists actually advocate, and what kinds of policy conclusions their methodology would support. They were the ones most seriously warning against the policies that brought about the financial collapse in the first place, and they are not the ones in charge of policy-making in the US or anywhere in the world today either.

They tried to STOP the $700 Billion bailouts, and the $800 Billion stimulus packages. They argue AGAINST the $1.5 Trillion worth of yearly deficits we've run for the past 4 years. They argue AGAINST having a central bank set interest rates and they argue consistently against the manipulation of the money supply.

Not a SINGLE member of Bush's or Obama's teams of economic advisers, nor anyone at the treasury or at the Federal Reserve (which is, as I mentioned, antithetical to Austrian School ideas from the start) is remotely influenced by the lessons of Mises, Bohm-Bawerk, or Menger... or really even by Schumpeter, Bastiat or Hayek.

We've seen an explosion of government spending, an explosion of regulatory control over the eocnomy during the past 40 years... We've seen NOTHING that remotely fits a model of what most Austrians might support.

3. Tax rates.

Contrary to the article... YES... 75% tax rates are going to create further capital flight from France (UPDATE: They ALREADY ARE.). Likewise, 94% top marginal income tax rates for a couple years, and then the 91% rates we had throughout the 50s and 70% rates we had from the 60s to 80s created incentives for America's wealthiest people to engage in tax-avoidance strategies (i.e. shifting their reported income from salaries to asset dividends, moving money to low-tax off-shore bank accounts and other legal strategies, and assuredly some illegal ones), and while those top rates only applied to those who would be billionaires today (i.e. not people making $250,000+ who are in the top bracket now) to begin with... their effective rates were always far lower.

Nobody has ever paid rates anywhere near 94%... and frankly. Why in the hell would they?

Beyond that... And here's the REALLY important part... What matters to government is not actually the tax RATES. What matters is revenue. And unfortunately, revenue in the US has been steady at 18-20% of GDP for the last 60 years...... In spite of tax rates being at 91%, and 70%, 42% and 39% and now down to 35%, that revenue as a percent of GDP has never substantially changed.

Why not? Because people actually DO change their behavior when rates go up or down, but the amount of blood people allow governments to extract doesn't fluctuate that much.
[Note: I made a video on this very topic not too long ago.]

We are, of course, also spending at about 25% of GDP, which is entirely unsustainable - yet history is not on your side if you think the solution here is to raise taxes.

What worthless garbage this article is.
I followed that up with an addition I meant to include in the original:
One other thing actually... All the freaking major economics textbooks, all the major universities, and all the lead government economists are all overtly Keynesian. And the policies we have are in line with that.

Before I go on, I want to point out that the book I linked above is Greg Mankiw's "Principles of Economics" textbook, which is the most widely used intro to economics textbook in the world. To pull from Mankiw's Wikipedia page, note the following:
"Nicholas Gregory "Greg" Mankiw ( /ˈmæn.kjuː/; Ukrainian Cyrillic: Григорій Манків; born February 3, 1958) is an American macroeconomist and Professor of Economics at Harvard University. Mankiw is known in academia for his work on New Keynesian economics.

From 2003 to 2005, Mankiw was chairman of the Council of Economic Advisers under President George W. Bush. In 2006, he became an economic adviser to Mitt Romney and continued during Romney's 2012 presidential bid.[1][2] He is a conservative[3][4][5][6] and he writes a popular blog, ranked the number one economics blog by US economics professors in a 2011 survey.[7] He is also author of the best-selling textbook Principles of Economics, and according to the IDEAS/RePEc rankings, he is the 32nd most widely cited economist in the world today.[8]"
Not only is Greg Mankiw one of the leading voices of "New Keynesian" economic thinking, he was also an adviser to George W. Bush during his term in office, as well as an adviser to Mitt Romney today.

Now... You might be thinking... Hey, this guy is a Republican! The Democrats surely offer something different, right? Are you wondering then what about Obama's advisers?

Well... Bad news, everyone!

They're all Keynesians as well - and even less influenced by the more free market teachings of the Chicago School, even when a few of them were influenced by Milton Friedman (it was hard not to be, for the record) in areas like statistics and modeling like Austen Goolsbee.

Here's the list of current & former members of the United States "Council of Economic Advisers" going back to 1949... I'm not going to go through each person one by one here, but I dare you... Go find me a single person substantially influenced by the Austrian School.

Spoiler alert: You're going to fail.

Even Milton Friedman - who was one of the most influential economists of all time by himself - isn't even on this list. But Joseph Stiglitz is. The point is easy. If you look at who has influence over the universities and over policy, it is NOT the Austrian School economists holed up at George Mason, or Auburn, or the other few outposts around the US. Pete Boettke, Don Boudreaux, and Steve Horwitz don't have any say over what's going on... and even less so do people like Robert Murphy, Mark Thornton or Peter Schiff... and somewhere way, way, wayyyy down on this list are people like

To say that they are the cause of all economic problems in the world is disastrously wrong and frankly... it's simply a lie written at "Addicting Info" to further provide confirmation of biases to those who don't know any better and don't want to know any better. It's very much like what I wrote many years ago in my first ever published op-ed on economics for the Ludwig von Mises Institute responding to similar stupidity coming from Thom Hartmann.

That said... I cannot even begin to say how irritating and borderline enraging this kind of stuff is.

And let's be honest... There's so much more to be enraged about in this article than I even commented on at the post!

I mean... Downes' argument here is literally that the government of France can keep all of its rich people by imprisoning them in a brutal taxation gulag.

If you don't want to be taxed at 75%, that's cool... leave the country, except... oops, we're going to tax everything you have when you leave and restrict all imports from coming in. So you'll be "stupid" if you don't just stay and take the beating while continuing to produce all you can for your starving fellow citizens. I'd ask if anybody honestly believed that any of this was a good idea or would make people in France better off... But apparently, around 7,000 people DO believe this!

What in the hell, world?

Restrictions on imports just mean that goods in France will be more expensive, and of poorer quality as French producers assuredly will not have comparative advantage in all cases but are insulated from outside competition thanks to consumers being literally or virtually prohibited from acquiring better or cheaper goods made elsewhere. Taxing rich people at those rates will utterly crush production to begin with, but the notion that rich people - who tend to have some ability to bribe public officials or to work around laws where they need to, and who also tend to be rather savvy about financial issues - won't just be able to leave or that they will simply take the punishment is insane.

It has NEVER worked that way.

All this economic thuggery is going to do - and IS already doing - is push out all the investment, all the capital and all the jobs and prosperity away from France to other, friendlier places. Places like Singapore & Hong Kong, or if you want to stay in Europe, Switzerland or even just across the channel in the UK. No matter what the idiot author of this piece thinks, France isn't engaging in "pro business" activities by punishing rich people, which isn't what I want government to be in any case, but it also sure as hell isn't "pro market" which is actually what matters if you want economic growth.

Capital availability for private entrepreneurship (a French word, by the way!) is absolutely essential to a thriving economy. The French government simply cannot redistribute its way into national prosperity no matter how many times they try.

It's all just so incredibly stupid that it literally gives me a headache, and if people don't get educated even well enough to know when they're being lied to, we're never going to get out of these kinds of messes as a species.

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