To Need Advice: The farther out you are in a distribution, the greater the relative distance between you and the person just a little farther out. The people buying those $10 million houses are even more frustrated than you that they cannot afford a $100 million house.
Which is why we really ought to raise revenues from high income people. Whatever utility they receive from their marginal dollar is mainly positional.
But, yes, exactly. As Bob points out you could tax multimillionaire consumption at a very high rate and the same people would end up with the same penthouses and ocean vistas. Utility-wise, nothing changes.
Oops, if nothing changes then all the additional revenue came out of their savings = investment. I'd like to believe that the penthouses will be smaller and the view shared with more people.
So, following Bob Frank, I think of it from the other end. A positional good (penthouse, ocean front house, etc.) is a good that, because of limited supply, goes to the people who want it with the highest relative disposable incomes. Even if we tax consumption like crazy, the people with the highest relative incomes are the same ones as before, and they still get to have their special things. The difference is that we get to fund good stuff with the tax.
Yes. That makes the decreased utility from consumption very low. If the prices of those consumption goods fall, that can release resources. I'd feel better, however, if the tax were on the consumption rather than the income so as not to decrease the incentive to save. But I'll take what I can get. :)
In my reading, the authors do not claim that Sponsian is "a lost Roman emperor", but rather an obscure and not very important regional strongman. From the paper: "Sponsian never controlled an official mint and was unrecorded by all later historians, so he certainly did not rule in Rome."
The comments about positional and aspirational wealth are as always on target. Still, and modulo the Stanford 1% techbro entitlement, the OP's question is cogent: who exactly _is_ buying thousands of - out here Medium City, Flyover State - $750,00 - $5,000,000 houses? Who is buying and driving the hundreds of single-occupant $85,000 pickup trucks without a spot of mud or a dent on them I see every day commuting to my old tech manufacturing job? There is an enormous amount of money and property sloshing around in the upper 5%-7% of the US economy; where is it coming from?
It came from cutting the top marginal tax rate from around 90% to less than 40%. Economies move money upwards towards greater concentrations as a simple network effect. The concentration follows a power curve. Increasing the rate of upward flow enabled massive inflation at the high end of the economy even while the rest of the economy was depressed. You could try a consumption tax, but a truly progressive income tax has been shown to work quite well.
One fallacy that led to lowering those high marginal rates was the idea that the wealthy would spend their increased take home pay on things that would help the overall economy even when it did next to nothing to increase aggregate demand. Instead, they spend it driving up the prices of positional goods. With the positional competition, there is actually more ROI on buying a $10M house and holding it for five years than investing that $10M in productive capacity and hoping for a return in five years. Only communists invest in productive capacity.
I always smile at your "Lora" font. Reminds me that Cambridge U.P. created new fonts for Whiteside's "The Mathematical Papers of Isaac Newton" so that both math and script would be lossless. The series is one of the great publishing achievements, and your blog reminds of it most every day.
That Pentocostal banner reminds me of the whale ears example in Gombrich's "Art and Illusion". I've got to dig up my copy, but there's an old etching of a beached whale with distinctive ears as opposed to flippers, and Gombrich used it as an example of an artist filling in the details of an image with what he knew rather than what he saw. Gombrich led to lots of fascinating discussions back in the 1970s. It's interesting to recognize his new relevance.
To Need Advice: The farther out you are in a distribution, the greater the relative distance between you and the person just a little farther out. The people buying those $10 million houses are even more frustrated than you that they cannot afford a $100 million house.
Which is why we really ought to raise revenues from high income people. Whatever utility they receive from their marginal dollar is mainly positional.
Yes indeed...
"Positional" - someone's been reading Bob Frank?
But, yes, exactly. As Bob points out you could tax multimillionaire consumption at a very high rate and the same people would end up with the same penthouses and ocean vistas. Utility-wise, nothing changes.
Bob Frank? Probably. This is not an original insight of mine. :)
Oops, if nothing changes then all the additional revenue came out of their savings = investment. I'd like to believe that the penthouses will be smaller and the view shared with more people.
So, following Bob Frank, I think of it from the other end. A positional good (penthouse, ocean front house, etc.) is a good that, because of limited supply, goes to the people who want it with the highest relative disposable incomes. Even if we tax consumption like crazy, the people with the highest relative incomes are the same ones as before, and they still get to have their special things. The difference is that we get to fund good stuff with the tax.
Yes. That makes the decreased utility from consumption very low. If the prices of those consumption goods fall, that can release resources. I'd feel better, however, if the tax were on the consumption rather than the income so as not to decrease the incentive to save. But I'll take what I can get. :)
Yes—this does seem to be the way we should roll...
I should not "tale" (as if I can chose) a progressive income tax over a progressive consumption tax?
Here is the Sponsian coin paper: https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0274285.
In my reading, the authors do not claim that Sponsian is "a lost Roman emperor", but rather an obscure and not very important regional strongman. From the paper: "Sponsian never controlled an official mint and was unrecorded by all later historians, so he certainly did not rule in Rome."
I read it the same way.
The comments about positional and aspirational wealth are as always on target. Still, and modulo the Stanford 1% techbro entitlement, the OP's question is cogent: who exactly _is_ buying thousands of - out here Medium City, Flyover State - $750,00 - $5,000,000 houses? Who is buying and driving the hundreds of single-occupant $85,000 pickup trucks without a spot of mud or a dent on them I see every day commuting to my old tech manufacturing job? There is an enormous amount of money and property sloshing around in the upper 5%-7% of the US economy; where is it coming from?
It came from cutting the top marginal tax rate from around 90% to less than 40%. Economies move money upwards towards greater concentrations as a simple network effect. The concentration follows a power curve. Increasing the rate of upward flow enabled massive inflation at the high end of the economy even while the rest of the economy was depressed. You could try a consumption tax, but a truly progressive income tax has been shown to work quite well.
One fallacy that led to lowering those high marginal rates was the idea that the wealthy would spend their increased take home pay on things that would help the overall economy even when it did next to nothing to increase aggregate demand. Instead, they spend it driving up the prices of positional goods. With the positional competition, there is actually more ROI on buying a $10M house and holding it for five years than investing that $10M in productive capacity and hoping for a return in five years. Only communists invest in productive capacity.
Yes. In retrospect, a huge mistake...
Happy Thanksgiving, Brad!
I always smile at your "Lora" font. Reminds me that Cambridge U.P. created new fonts for Whiteside's "The Mathematical Papers of Isaac Newton" so that both math and script would be lossless. The series is one of the great publishing achievements, and your blog reminds of it most every day.
That Pentocostal banner reminds me of the whale ears example in Gombrich's "Art and Illusion". I've got to dig up my copy, but there's an old etching of a beached whale with distinctive ears as opposed to flippers, and Gombrich used it as an example of an artist filling in the details of an image with what he knew rather than what he saw. Gombrich led to lots of fascinating discussions back in the 1970s. It's interesting to recognize his new relevance.
Along with Sponsian we should perhaps have this one: https://www.theguardian.com/world/2022/nov/24/emperor-charles-vs-secret-code-cracked-after-five-centuries
Texts and historians are time travelers, in opposite directions. As a result the timeline is constantly shifting.
Very interesting...