The Blog Of Your Betters

[Pontiuth Pilate]

So:

I have to take an Economics class for sociology credit, because liberal arts colleges make you study things you don't want to study.

Our textbook is Principles of Economics by a certain Gregory Mankiw.

Now, seeing that he strongly advocates Pigovian gasoline taxes (which I am a fan of) and a carbon cap and trade system (ditto) I was interested in finding out just who this Mankiw fellow is.

Turns out he is a Harvard professor who was the chairman of Bush's council of economic advisors from 2003-2005.

Also turns out, HE HAS TEH BLOG:

http://gregmankiw.blogspot.com/

'Tis a fascinating window into the world of 1) Havard undergrads, 2) econ wonks, 3) rich mofos.

One post:

Economist Jeremy Siegel takes his students to talk with Warren Buffett. My favorite line:

He wisely counsels that anything that happens to your finances is secondary to the important things in life – picking a suitable and compatible mate, developing a relationship with your children, and doing something that you enjoy.

I hope all those Harvard students aspiring for jobs in investment banking or management consulting keep this advice in mind.

A "suitable and compatible mate"! Ah yes, the two of you can't have matching investment portfolios for example, you have to make sure to diversify. And what if you both didn't go to Brookline? How will you decide what prep school to send your child, WHOOPS, I mean, "offspring," to?

Greg's readers lend their thoughts on "mates":

The "important things" in life that Buffet mentioned are those that are important to him. IB analysts and Management Consulting analysts may find other things, including working 90 hour weeks, important to them. Secondly, most analysts don't consider their work particularly financially rewarding; they use their position as a stepping stone to a better job.

Can he also counsel us on how to get a good mate without having to become an investment banker?

And this:

Barstool Tax Policy


An ec 10 student emails me the following parable:

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that's what they decided to do.
The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20." Drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?' They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.
"I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man," but he got $10!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than I!"
"That's true!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"
"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

​

Apparently, there is some dispute about the authorship of the story.

 

[Abaddon]

I like the bottom one

 

[Elrohir]

I love the story. I never heard that before, but it's awesome.

 

[Pontiuth Pilate]

I want to see how many more people like the bottom story or think it is anywhere close to accurate

 

[CCA]

The solution is to confiscate private property to prevent the transfer of assets abroad.

Obviously

 

[puglover]

The tax story makes a good point.

 

[Abaddon]

I would enslave the first 4 men if i were the top dog.

 

[Catharsis]

Every day, these ten men spend $100 on beer? The obvious solution is to get a wife.

 

[Murky]

I wonder if he now regrets writing that pro-Bush article back in 2000.

http://www.economics.harvard.edu/faculty/mankiw/columns/nov00.html

 

[jameson]

The tax story makes a good point.

No it doesn't. It makes a fundamental error. It insists the men in the bar want to keep paying the bill in the same way they did before the rebate, and then uses a different method to distribute the $20 rebate than it did to determine who pays what in the initial situation ( by using dollar terms rather than percentage terms).
It's bogus rhetoric and I'm rather disappointed Mr. Mankiw would stoop to blogging barstool tales like this to make his point. But then, he didn't see fit to object to the President's calamitous fiscal policy either.

 

[ShannonCT]

No it doesn't. It makes a fundamental error. It insists the men in the bar want to keep paying the bill in the same way they did before the rebate, and then uses a different method to distribute the $20 rebate than it did to determine who pays what in the initial situation ( by using dollar terms rather than percentage terms).
It's bogus rhetoric and I'm rather disappointed Mr. Mankiw would stoop to blogging barstool tales like this to make his point. But then, he didn't see fit to object to the President's calamitous fiscal policy either.

The story doesn't have a flaw. "The group still wanted to pay their bill the way we pay our taxes" means that they wanted to continue paying progressively according to each ones wealth. The redistribution of the $20 in a manner that favors the poorer men in percentage terms and the wealthier men in dollar terms illustrates what usually happens with across the board tax cuts. This story is a scathing rebuke to communist-leaning politicians who try to get elected by bashing the wealthy.

Bloody brilliant story!

 

[JollyRoger]

The story doesn't have a flaw. "The group still wanted to pay their bill the way we pay our taxes" means that they wanted to continue paying progressively according to each ones wealth. The redistribution of the $20 in a manner that favors the poorer men in percentage terms and the wealthier men in dollar terms illustrates what usually happens with across the board tax cuts. This story is a scathing rebuke to communist-leaning politicians who try to get elected by bashing the wealthy.

Bloody brilliant story!

What is the solution to the story? Close the bar?

 

[ShannonCT]

What is the solution to the story? Close the bar?

The bar should broadcast Econ lectures when there is no ball game to watch.

 

[downtown]

The story makes one glaring mistake in my eyes...which is part of the reason we have progressive taxation in the first place. The Rich have greater accsess to social capital, markets and power...and as such, they ought to pay more for that priviledge.

In the story, everybody is drinking the same beer at the same bar. Thats not the way it is in America. The bottom 6 drinkers will never be able to run for meaningful political office. They won't have the same investment oppertunities. They just get free beer.

That 10th guy could go to a bar in the caymans for cheaper beer...but if he stays at that bar, in America, he'd be booking the band, chosing what we get to watch on TV, and gets to throw people out he doesn't like ( to continue with the labored bar analogy)

So then its fair that his beer costs more.

 

[ShannonCT]

The story makes one glaring mistake in my eyes...which is part of the reason we have progressive taxation in the first place. The Rich have greater accsess to social capital, markets and power...and as such, they ought to pay more for that priviledge.

Where does the story question the idea that the rich man should be paying more, or that he should get a smaller rebate in percentage terms?

In the story, everybody is drinking the same beer at the same bar. Thats not the way it is in America. The bottom 6 drinkers will never be able to run for meaningful political office. They won't have the same investment oppertunities. They just get free beer.

And they should be happy with the free beer and not destroy the source of their free beer. If the story misses anything, it's that once the rich man is rebated $10, he will probably be willing to buy more beer and all of the drinkers will be better off, as long as the poorer men don't complain about the rich man getting a bigger rebate in dollar terms.

 

[jameson]

What is the solution to the story? Close the bar?

It's to cut everyone's tab by 20% of course ( but that wouldn't make for a good story).

 

[Mise]

The 2nd blog makes no sense what's it trying to prove? What does the "beer" represent? What does the cost of the beer represent?

Can someone explain it to me bit by bit? I'm obviously too thick to understand such a highly sophisticated analogy.

 

[Bamspeedy]

The 2nd blog makes no sense what's it trying to prove? What does the "beer" represent? What does the cost of the beer represent?

Can someone explain it to me bit by bit? I'm obviously too thick to understand such a highly sophisticated analogy.

While there are some services the rich do benefit more from, there are many services that they don't and receive the same as poor people (road maintenence, national defense, garbage removal, etc.). The story is more focusing on the things (services) our taxes (the bill) pays for that everyone pretty much enjoys equally.

The main point of the story, in my opinion, (besides what was in the last paragraphs about the rich just getting up and leaving if you tax them too much, making everyone else foot the bill, thus increasing their costs or 'taxes') is how some people cry 'the rich get all the tax cuts!' by looking at $ terms instead of % terms. If you look at the % terms, the lower income people got the biggest breaks. (Although the very poorest got a 0% reduction, they still were paying nothing just like before so they can't complain). People complain about the top % of rich people owning half of the wealth, but don't realize that they also pay half the taxes.

 

[Mise]

While there are some services the rich do benefit more from, there are many services that they don't and receive the same as poor people (road maintenence, national defense, garbage removal, etc.). The story is more focusing on the things (services) our taxes (the bill) pays for that everyone pretty much enjoys equally.

Rich people use roads more (both personally and in acquiring their wealth), produce more refuse, and have more assets to defend. That said, I do accept that it is a disproportionately larger amount of tax that rich people pay compared to the cost of the services they use.

The main point of the story, in my opinion, (besides what was in the last paragraphs about the rich just getting up and leaving if you tax them too much, making everyone else foot the bill, thus increasing their costs or 'taxes') is how some people cry 'the rich get all the tax cuts!' by looking at $ terms instead of % terms. If you look at the % terms, the lower income people got the biggest breaks. (Although the very poorest got a 0% reduction, they still were paying nothing just like before so they can't complain). People complain about the top % of rich people owning half of the wealth, but don't realize that they also pay half the taxes.

I got that, but I don't see what "reducing the price of the beer" from $100 to $80 means. The bartender/gov't made 20% cuts in public services, and is trying to pass this onto the public, through tax decreases? Well, why give the TOTAL amount paid, and the percentage REDUCTION in taxes, then? The government never does this. The government reduces the tax rates -- it never tells people that the top 10% are going to get a 16% reduction in the TOTAL amount paid, it tells people that the top 10% tax band will fall/rise by x%.

 

[ShannonCT]

I got that, but I don't see what "reducing the price of the beer" from $100 to $80 means. The bartender/gov't made 20% cuts in public services, and is trying to pass this onto the public, through tax decreases? Well, why give the TOTAL amount paid, and the percentage REDUCTION in taxes, then? The government never does this. The government reduces the tax rates -- it never tells people that the top 10% are going to get a 16% reduction in the TOTAL amount paid, it tells people that the top 10% tax band will fall/rise by x%.

Politicians who play the class card like to decribe tax cuts in dollar terms: "These tax cuts would give the average millionaire $30,000 per year and the average single mother $1,000 per year. The single mother needs the money more. Why should we give millionaires more money? We should be giving the single mothers $30,000 per year!"