For the Wealthiest, a Private Tax System That Saves Them Billions

[Harry Bosch]

You're assuming the investment is in productive assets and not just paper financial instruments that don't produce anything other than interest or dividends.

The problem becomes more and more cash being in the hands of people with less propensity to consume.

The economy is a body and money is the blood. Let a couple parts of the body keep most of the blood from circulating and the body dies.

The problem is that you don't understand the difference between wealth and cash.

 

[ksen]

no, i don't think that's the problem

 

[DBT]

Western societies are probably the most prosperous of societies in history, but that doesn't necessarily make them ideal, or fair.

My point was that we are becoming less equitable over time. Wealth is concentrating in the hands of the few. Middle class is receding, wages are not maintaining their buying power and jobs are disappearing. Now, the situation is probably still perceived to be acceptable by the majority but the problems I mentioned, the growing gaps between the wealthy and the rest of us, work prospect for the coming generations is a recipe, if not addressed, for major trouble.

 

[Axulus]

Western societies are probably the most prosperous of societies in history, but that doesn't necessarily make them ideal, or fair.

My point was that we are becoming less equitable over time. Wealth is concentrating in the hands of the few. Middle class is receding, wages are not maintaining their buying power and jobs are disappearing. Now, the situation is probably still perceived to be acceptable by the majority but the problems I mentioned, the growing gaps between the wealthy and the rest of us, work prospect for the coming generations is a recipe, if not addressed, for major trouble.

A big piece of what is going on is that the wealthy are marrying those who are wealthy or who have the potential to become wealthy:

…The numbers show that assortative mating really matters. One study indicated that if the marriage patterns of 1960 were imported into 2005, the Gini coefficient for the American economy — the standard measure of income inequality — would fall to 0.34 from 0.43, a considerable drop, given that the scale runs from zero to one…

http://marginalrevolution.com/margi...economic-inequality.html#sthash.ROg1dSYp.dpuf

Are you suggesting one of the solutions is to forbid who can marry whom to avoid this "major trouble".

Another source: smaller average household size (more households consisting of just one adult who earns money instead of two):

In Germany, two observations can be made over the past 20 years: First, income inequality
has been constantly increasing while, second, the average household size has been
declining dramatically. The analysis of income distribution relies on equivalence-weighted
incomes which take into account household size. Therefore, there is an obvious link between
these two developments. The aim of the paper is to quantify how the trend towards smaller
households has influenced the change in income distribution. In order to do so, we are using
a decomposition of changes in inequality measures over time allowing for a separation
between wage and demographic effects respectively. We propose similar decompositions for
the change in poverty and richness as well and compare them with results that were obtained
by a re-weighting procedure. Our results show that the income gap would also have
increased without the demographic trend. But its level would be lower than it actually is. In
addition, the demographic effect turns out to be larger for incomes before tax and benefits.

http://ftp.iza.org/dp4770.pdf

Perhaps another solution is to forbid divorce and force marriage for single parents.

 

[coloradoatheist]

Taxation is as old as government.

Yes, but taxes at that time weren't there to drive behavior. There wasn't a progressive income tax, no inheritance tax, no tax deductions for behavior.

 

[ksen]

A big piece of what is going on is that the wealthy are marrying those who are wealthy or who have the potential to become wealthy:

…The numbers show that assortative mating really matters. One study indicated that if the marriage patterns of 1960 were imported into 2005, the Gini coefficient for the American economy — the standard measure of income inequality — would fall to 0.34 from 0.43, a considerable drop, given that the scale runs from zero to one…

http://marginalrevolution.com/margi...economic-inequality.html#sthash.ROg1dSYp.dpuf

Are you suggesting one of the solutions is to forbid who can marry whom to avoid this "major trouble".

Are you suggesting that the wealthy didn't tend to marry the wealthy in the past?

Another source: smaller average household size (more households consisting of just one adult who earns money instead of two):

In Germany, two observations can be made over the past 20 years: First, income inequality
has been constantly increasing while, second, the average household size has been
declining dramatically. The analysis of income distribution relies on equivalence-weighted
incomes which take into account household size. Therefore, there is an obvious link between
these two developments. The aim of the paper is to quantify how the trend towards smaller
households has influenced the change in income distribution. In order to do so, we are using
a decomposition of changes in inequality measures over time allowing for a separation
between wage and demographic effects respectively. We propose similar decompositions for
the change in poverty and richness as well and compare them with results that were obtained
by a re-weighting procedure. Our results show that the income gap would also have
increased without the demographic trend. But its level would be lower than it actually is. In
addition, the demographic effect turns out to be larger for incomes before tax and benefits.

http://ftp.iza.org/dp4770.pdf

Perhaps another solution is to forbid divorce and force marriage for single parents.

In the past one income was enough to support a larger household.

Today more income is needed to support smaller households. If the wage and productivity link had not been severed ~35 years ago this would not be a problem.

 

[Bomb#20]

I just logged onto my robin hood account and bought some apple stock.

So, what is that stock going to produce other than interest (in the form of capital gains) or dividends?

It's going to produce a little bit of the ongoing expectation that there will be an aftermarket where investments in IPOs can be sold, so people considering financing new productive capacity won't be discouraged by it being a lifetime commitment of their resources. In addition, (assuming the guy who sold the stock to you was making a rational decision), it frees up his assets to be used in some way that's more useful to him. In addition, (assuming you didn't foolishly put your whole life savings into Apple stock), it probably converted some of the economy's diversifiable but undiversified risk into diversified risk, thereby infinitesimally improving the economy's overall risk/return ratio.

But never mind that -- it's inessential to the issue at hand.

No, it's kind of essential since not all spending and investment is equal.

Not all spending and investment is equal, true; but the reason it's inessential is that there are no grounds to assume that what you'd have spent the money on if you consumed it instead of buying Apple stock would have been better for the economy than what the guy who sold you the stock is going to spend the money on. So even if financial instruments were as demonstrably unproductive as betting on dice, there are no grounds to infer that buying such instruments instead of consuming your wealth harms the community. Even then it would be statistically a wash.

The problem becomes more and more cash being in the hands of people with less propensity to consume.

The economy is a body and money is the blood. Let a couple parts of the body keep most of the blood from circulating and the body dies.

Failing to drink your own blood has no power to stop blood from circulating through other people's bodies. The total blood supply is not a fixed quantity. Money is a debt instrument -- money is the memory of favors done and not yet returned. If too many people owe too many favors to a few people who are not calling in their favors, and the resulting shortage of IOUs is causing economic activity in general to decline, it's not the nonconsumption that's the problem. Nonconsumption has no magical power to stop people from scrawling up new IOUs and continuing to do favors for one another. The problem is not enough IOUs. You don't need rich people to call in their favors to fix that; you need a printing press. The cure for a recession caused by low demand isn't Bill Gates buying stuff he doesn't need; it's government buying stuff people do need. Isn't that what Keynes said?

What are you blabbering about?

If it's true that too little blood/cash circulating through the body/economy will cause the body/economy to die/collapse, this outcome is easily forestalled by the government compensating for it by simply creating more money and putting it in the hands of people with more propensity to consume -- something governments already tend to be eager to do anyway for their own reasons. So there's no basis for thinking the people who have money and don't spend it are thereby doing any harm. All they're doing is reducing the inflationary danger of the normal predictable behavior of governments. They're doing the rest of us a favor.

 

[bilby]

Taxation is as old as government.

Yes, but taxes at that time weren't there to drive behavior. There wasn't a progressive income tax, no inheritance tax, no tax deductions for behavior.

At what time? "As old as government" isn't A time; it is ALL time (since the start of government). At various points during that very long time-frame, all of those kinds of taxes have existed; and in many cases there was intent on the part of those imposing the taxes to drive behaviour.

And since when has intent been necessary for a cause to lead to an effect?

That the effect is more pronounced when the taxation system is progressive, taxes income, etc. is observably true, and that people as a whole are today on average vastly richer than at any time in history, supports the point I am making; Your response, on the other hand, does nothing to refute my point - and indeed barely addresses it.

I completely understand if you don't want to discuss something that might lead to you having to revise your deeply held beliefs. But please don't imagine that your weak, handwaved response to a tiny fraction of my point is sufficient rebuttal for anyone who doesn't already agree with you.

 

[DBT]

A big piece of what is going on is that the wealthy are marrying those who are wealthy or who have the potential to become wealthy:

Hasn't it always been the case that people do not marry below their 'station' or class? I'm not aware of any great shift in that department.


It is a factor, but I don't think that this is the main driver for the growing divide between the very rich and the rest of the population.

 

[Canard DuJour]

If it's true that too little blood/cash circulating through the body/economy will cause the body/economy to die/collapse, this outcome is easily forestalled by the government compensating for it by simply creating more money and putting it in the hands of people with more propensity to consume

The rich dislike that as much as direct taxation and have used the same political influence against it. Instead we get austerity in response to economic slowdowns.

 

[jonatha]

But Bill Gates has already been taxed on the income that his $80 billion is left over from.

Bill Gates's fortune consists largely of appreciated MSFT stock.

Not only has he not in fact been taxed on it, he is likely never to be taxed on it.

(In his case it's because he's donating it to charity, but a standing GOP platform plank is to eliminate the estate tax, in which case no tax would ever be paid on most of the income the fortune represents.)

 

[Harry Bosch]

But Bill Gates has already been taxed on the income that his $80 billion is left over from.

Bill Gates's fortune consists largely of appreciated MSFT stock.

Not only has he not in fact been taxed on it, he is likely never to be taxed on it.

(In his case it's because he's donating it to charity, but a standing GOP platform plank is to eliminate the estate tax, in which case no tax would ever be paid on most of the income the fortune represents.)

Very unlikely that the estate tax will ever go away. In the US we have a general policy that we tax income, not assets.

 

[Crazy Eddie]

Because your position of power to change the rules so you don't "Have to" pay taxes anymore is unethical. Using that same position to avoid being punished for your unethical behavior is corruption.

And using sheer force of numbers, public discord, and an armed cadre of police and/or military officers who feel the same way to forcibly drag said unethical corrupt individuals out of their homes and beat them to death with bars of soap is potentially a thing of beauty.

Hopefully, anyone critical of the rich for acting in their own interest is not so hypocritical as to take deductions or fail to give gifts to the treasury in excess of actual tax liability.

That's kinda what I mean: if there's nothing wrong with the rich acting unethically in their own interests, then there's nothing wrong with the poor doing the same. When a person or persons have the power to unilaterally reshape the laws in their own favor, the citizens have no further moral obligation to obey it.

What is ethical or moral is not the same as what is legal.

That's irrelevant. If the LAW is unethical, then violating it is not. "Legal" is only relevant to the extent that it can be enforced, and those laws may become unenforceable if enough of the enforcers decide the law ought not be implemented.

Does that cut both ways? Would you also say that if there's nothing wrong with the poor acting unethically in their own interests, then there's nothing wrong with the rich doing the same?

No, because poor people don't have the power to write laws giving legal cover to their unethical actions.

The law exists, in theory, as a means to regulate society and encourage constructive behavior among all citizens, which is why it is assumed that rich people and poor people have to obey the same laws and have the same penalties for violating them. What is just and fair for a rich person is assumed to be just and fair for a poor person and thus both are held to the same standard of behavior.

This system breaks down when a law is passed that specifically impacts the poor but not the rich. For example: a law that requires that all citizens MUST own a house with at least three bedrooms or be subject to vagrancy fines, or a law that requires citizens to maintain a savings account with at least $10,000 at all times. The poorer citizens impacted by such a law have no ethical conflict with violating it: the law serves no purpose but to disadvantage them, not benefit them. Likewise, the police department tasked with enforcing that law would have no ethical conflict in refusing to do so, especially since many OFFICERS cannot afford their own homes and won't be able to save that much money before the end of the decade.

Apparently we're calling lower taxes "don't have to pay taxes anymore". The poor, due to their numbers, have a position of power

No, they collectively have the right to vote for a representative of their choice. They have no actual power to draft legislation and little or no direct influence over politicians. It would be silly to even attempt to compare "voting in a public election" to "lobbying politicians and directly supporting political causes through huge cash contributions in exchange for cooperation." Voting is a democratic process; influence-buying is not.

And this before you consider that some of the tax laws were actually WRITTEN by lobbyists before being voted on and passed by congress. Are you under the impression that the EITC was written by a coalition of single mothers and inner city PTO parents?

Do you therefore call that corruption?

No, I call that representative democracy. "I will vote for you in the next election if you vote yes" is not the same thing as "I will give you $500,000 if you vote no."

Do you understand the difference between a vote and a bribe?

 

[Bomb#20]

Because your position of power to change the rules so you don't "Have to" pay taxes anymore is unethical. Using that same position to avoid being punished for your unethical behavior is corruption.

And using sheer force of numbers, public discord, and an armed cadre of police and/or military officers who feel the same way to forcibly drag said unethical corrupt individuals out of their homes and beat them to death with bars of soap is potentially a thing of beauty.

Hopefully, anyone critical of the rich for acting in their own interest is not so hypocritical as to take deductions or fail to give gifts to the treasury in excess of actual tax liability.

That's kinda what I mean: if there's nothing wrong with the rich acting unethically in their own interests, then there's nothing wrong with the poor doing the same. When a person or persons have the power to unilaterally reshape the laws in their own favor, the citizens have no further moral obligation to obey it.

What is ethical or moral is not the same as what is legal.

That's irrelevant. If the LAW is unethical, then violating it is not. "Legal" is only relevant to the extent that it can be enforced, and those laws may become unenforceable if enough of the enforcers decide the law ought not be implemented.

Does that cut both ways? Would you also say that if there's nothing wrong with the poor acting unethically in their own interests, then there's nothing wrong with the rich doing the same?

No, because poor people don't have the power to write laws giving legal cover to their unethical actions.

Why does it make a difference who does the grunt-work of drafting pages and pages of legalese? Politicians know what poor people want, they know if they don't give it to them they'll lose their jobs, and they have staffers who are skilled in drawing up laws. What, if poor people don't write the law themselves they won't know who to vote out of office if a tax law that makes them pay the same rate as rich people gets enacted? What, if legislators were procedurally banned from introducing bills they hadn't written themselves, you wouldn't still be raising moral objections to a rich guy asking a politician to go draft a law to cut his taxes? How can whether a law is just or unjust depend on who authored it? Who writes the law is a side-issue.

The law exists, in theory, as a means to regulate society and encourage constructive behavior among all citizens, which is why it is assumed that rich people and poor people have to obey the same laws and have the same penalties for violating them. What is just and fair for a rich person is assumed to be just and fair for a poor person and thus both are held to the same standard of behavior.

Yes, that's how it's supposed to be. And yet you proposed a standard, and when rich people violate it you dream of beating them to death with bars of soap, whereas when poor people violate it you leap to their defense. That's a double standard. That's identity politics. That's "My ingroup, right or wrong".

This system breaks down when a law is passed that specifically impacts the poor but not the rich. For example: a law that requires that all citizens MUST own a house with at least three bedrooms or be subject to vagrancy fines, or a law that requires citizens to maintain a savings account with at least $10,000 at all times.

Indeed so. Such a law would be totally unjust. Such a law would be totally unjust, if it existed. But those are make-believe laws, hypotheticals, examples invented merely to illustrate the concept. There's no need for hypotheticals in the other direction. For instance, poor people in California passed the MHSA, a law that specifically requires the rich but not the poor to spend twenty hours of their lives each year helping provide care and housing for mentally ill people.

The poorer citizens impacted by such a law have no ethical conflict with violating it: the law serves no purpose but to disadvantage them, not benefit them. Likewise, the police department tasked with enforcing that law would have no ethical conflict in refusing to do so, especially since many OFFICERS cannot afford their own homes and won't be able to save that much money before the end of the decade.

So do the richer citizens impacted by the MHSA likewise have no ethical conflict with violating it? Is what is just and fair for a poor person assumed to be just and fair for a rich person, or do you hold them to different standards of behavior?

Apparently we're calling lower taxes "don't have to pay taxes anymore". The poor, due to their numbers, have a position of power

No, they collectively have the right to vote for a representative of their choice.

And they get their way if they collectively vote differently from the rich. To deny that that's "power" is Orwellian.

They have no actual power to draft legislation and little or no direct influence over politicians. It would be silly to even attempt to compare "voting in a public election" to "lobbying politicians and directly supporting political causes through huge cash contributions in exchange for cooperation." Voting is a democratic process; influence-buying is not.

I.e., you didn't mean using one's power to change the rules to favor oneself over somebody else is unethical? What you meant was that using one's power to change the rules to favor oneself over somebody else is unethical unless it's the kind of power you approve of and the favoritism getting enacting is the kind of favoritism you approve of?

What the poor people are doing meets your stated criterion for being unethical. "A is in category C, and you can't compare A to B." is not a substantive argument against B also being in category C. You might as well offer "It would be silly to even attempt to compare burglary to murder" as a reason to think burglary shouldn't be a crime.

Do you therefore call that corruption?

No, I call that representative democracy. "I will vote for you in the next election if you vote yes" is not the same thing as "I will give you $500,000 if you vote no."

Do you understand the difference between a vote and a bribe?

Certainly. So you think there's a huge moral difference between telling somebody you'll give him $500,000 in a briefcase if he votes to break down the system where the law encourages constructive behavior among all citizens by holding everyone to the same standard of behavior, and voting in a manner that makes him understand that you'll force your neighbors to give him a $150,000 salary if he votes to break down the system where the law encourages constructive behavior among all citizens by holding everyone to the same standard of behavior? Which difference is it that makes the one more moral than the other? The smaller payoff? The fact that the bargain is struck openly instead of off in a back room someplace? The fact that the people offering money for obedience will use other people's money to make good on their end of the bargain?

People fetishize democracy, as though how power is obtained matters more than how it's exercised. The virtue of democracy is not that it confers morality on rulers' actions, but simply that it's the worst form of government there is except for all the others that have been tried. To imagine democracy confers morality is to adopt a "Supreme Wisher" moral theory, i.e., to think about morality at the level of a theist.

If a Jew makes himself dictator and decrees that Jews only pay half the tax rate that Christians pay, that's corruption. If Christians win free and fair elections and become representatives and vote in the legislature to legally enact a law that requires Christians to only pay half the tax rate that Jews pay, you can call that representative democracy if you please. And you'd be right to -- representative democracy it is. But that's still corruption. Furthermore, if the Christian representatives do that not because they want to but because the Christians who voted them into office want them to, then it's not just the representatives who are corrupt.

 

[Bomb#20]

Bill Gates's fortune consists largely of appreciated MSFT stock.

Not only has he not in fact been taxed on it, he is likely never to be taxed on it.

(In his case it's because he's donating it to charity, but a standing GOP platform plank is to eliminate the estate tax, in which case no tax would ever be paid on most of the income the fortune represents.)

Very unlikely that the estate tax will ever go away. In the US we have a general policy that we tax income, not assets.

In any event, Bill has for all practical purposes been taxed on it. If he buys anything with that stock he'll have to pay the tax on it, which means that the feds have a de facto lien on it. The market value of the lien goes up and down with the fortunes of Microsoft, which makes it pretty much financially equivalent to the government owning shares of Bill's appreciated MSFT stock. So Bill is functionally paying his taxes in kind instead of in dollars, much like a farmer growing a wheat crop that the local feudal lord is entitled to a third of. And if Bill uses those billions not to buy something but to make even more billions, by keeping Microsoft profitable and keeping MSFT appreciating further, then that just makes the government's effective ownership of a huge hunk of MSFT stock a really smart investment for the country.

Even in the unlikely event that the estate tax is ever eliminated, that wouldn't be enough to make Bill's billions tax-free. The government would also have to reset the capital gains basis from market value at the time the deceased acquired the stock to market value at the time of death. Without that second step, eliminating the estate tax would simply mean the government was electing to hang onto its valuable lien instead of liquidating it.

 

[Crazy Eddie]

Why does it make a difference who does the grunt-work of drafting pages and pages of legalese?

For the same reason it makes a difference which side of a negotiation gets final say on the language of a contract or a treaty. I am 99% sure you do not actually need me to explain that.

Politicians know what poor people want, they know if they don't give it to them they'll lose their jobs

Well, no... they know that if they don't WIN ELECTIONS they will loose their jobs. American politicians do not win elections by passing popular laws, they win elections by running effective campaigns. This is why politicians who pass unpopular laws still manage to get reelected and politicians who pass popular laws are often defeated by better-funded challengers running on campaign promises they have no intention of keeping.

You are not nearly naive enough for me to have to explain this to you.

How can whether a law is just or unjust depend on who authored it?

Because obtaining access to a politician through bribery is unethical; using said access to influence legislative action in your own favor, doubly so.

You are not nearly naive enough for me to have to explain THIS to you either.

The law exists, in theory, as a means to regulate society and encourage constructive behavior among all citizens, which is why it is assumed that rich people and poor people have to obey the same laws and have the same penalties for violating them. What is just and fair for a rich person is assumed to be just and fair for a poor person and thus both are held to the same standard of behavior.

Yes, that's how it's supposed to be. And yet you proposed a standard, and when rich people violate it you dream of beating them to death with bars of soap, whereas when poor people violate it you leap to their defense.

It's not a standard poor people are capable of violating; bribing politicians requires both personal access and a large amount of money. Poor people have neither.

And no, having a superpac agree to run $300,000 worth of attack ads against your opponent in exchange for a "no" vote on a key piece of legislation is NOT the same thing as "donating to a campaign fund." You are CERTAINLY not naive enough for me to have to explain that to you and it seems clear at this point you are simply taking the piss.

Three strikes you're out. The rest of your responses in this thread will be ignored.

 

[Bomb#20]

If it's true that too little blood/cash circulating through the body/economy will cause the body/economy to die/collapse, this outcome is easily forestalled by the government compensating for it by simply creating more money and putting it in the hands of people with more propensity to consume

The rich dislike that as much as direct taxation and have used the same political influence against it. Instead we get austerity in response to economic slowdowns.

Hey, if you want to criticize the rich for using their influence to promote unscientific economic policies, no argument; but that's something the poor are even more guilty of. People in general tend to be as ignorant of economics as creationists are of biology. But ksen was criticizing the rich for saving too much; that's not a valid criticism.

 

[Bomb#20]

The cure for a recession caused by low demand isn't Bill Gates buying stuff he doesn't need; it's government buying stuff people do need. Isn't that what Keynes said?

Actually, the solution is Bill Gates buying people stuff they do need. The government just acts to compel him to do so - because it is in the interests of the nation and the people to do that, but it isn't in the interest of Bill Gates. Whether the money is taken from Bill as taxes, or whether his money is simply devalued by the government printing more of it, is not all that important - but psychologically, taxation generally produces better results than inflation, even though they are economically similar.

But I wasn't arguing for inflation; I was arguing for printing more money specifically when it wouldn't cause inflation, because the dollars already out there aren't chasing goods and services very much. The point is to prevent deflation, which will screw up an economy worse than inflation will. Unnecessary consumption isn't as good a way to prevent deflation as printing more money is*. If you want to argue that a tax increase is an even better way to prevent deflation than printing money is, knock yourself out; but that certainly doesn't follow from taxation producing better results during conditions with serious inflation risk.

The aim of the game is to minimise poverty and suffering, and maximise happiness, for the entire population. Fairness and property rights can, at times, help with this goal, and can at other times hinder it; but they are not goals in their own right.

Hey, I wasn't offering an opinion on the Utilitarian merits of any policy in particular; I was just pointing out that certain prevalent memes about what is and isn't fair are based on nonsensical arguments. If you aren't concerned with fairness, my posts and yours are on different topics.

(* And therefore the argument that it's fair to tax the rich extra because they're harming the community by saving too much is nonsensical.)

 

[Canard DuJour]

The rich dislike that as much as direct taxation and have used the same political influence against it. Instead we get austerity in response to economic slowdowns.

Hey, if you want to criticize the rich for using their influence to promote unscientific economic policies, no argument; but that's something the poor are even more guilty of. People in general tend to be as ignorant of economics as creationists are of biology.

That's not quite what's going on though.

Something rather more pernicious is going on : the rich are using their influence to promote unscientific economics. Scientific orthodoxy and the preponderance of evidence easily refute creationism. Economic orthodoxy supports policies which the preponderance of evidence suggests benefit the rich exclusively. Even scientifically informed folks happily spout that firms face rising marginal costs/falling marginal labour productivity and stop producing/hiring where marginal costs equal marginal revenues. Every empirical study of real firms -and there have been plenty- suggests this is plain wrong. 90+ % report decreasing to flat marginal costs and increasing to flat marginal labour productivity. That is, once it's explained what they even are since neither figure in typical production/hiring decisions. As Alan Blinder concluded from the biggest such study : "The overwhelmingly bad news here (for economic theory) is that apparently, only 11 percent of GDP is produced under conditions of rising marginal cost."

The reality suggests, not an MC=MR equilibrium, but a demand-constrained, below-capacity one where policies which increase wage-share and flatten income distribution do not cause "inefficiencies", "dead-weight loss" etc, and might even mitigate them. Thus is the evidence ignored by theory never intended as a description of reality.

But ksen was criticizing the rich for saving too much; that's not a valid criticism.

It is if they use economic slowdowns as a pretext for austerity.

 

[Bomb#20]

Every empirical study of real firms -and there have been plenty- suggests this is plain wrong. 90+ % report decreasing to flat marginal costs and increasing to flat marginal labour productivity. That is, once it's explained what they even are since neither figure in typical production/hiring decisions. As Alan Blinder concluded from the biggest such study : "The overwhelmingly bad news here (for economic theory) is that apparently, only 11 percent of GDP is produced under conditions of rising marginal cost."

The reality suggests, not an MC=MR equilibrium, but a demand-constrained, below-capacity one where policies which increase wage-share and flatten income distribution do not cause "inefficiencies", "dead-weight loss" etc, and might even mitigate them.

I'm not following you; maybe it would help if you linked the study instead of just Wikipedia. But a demand-constrained below-capacity equilibrium is an MC=MR equilibrium. If MC is flat or even somewhat decreasing, the supply and demand curves are still going to cross if MR is falling faster, which it surely will be if the market is demand-constrained.

Thus is the evidence ignored by theory never intended as a description of reality.

But ksen was criticizing the rich for saving too much; that's not a valid criticism.

It is if they use economic slowdowns as a pretext for austerity.

I don't know why you think you see some nefarious conspiracy here. It's not a pretext. Of course it was intended as a description of reality. People believe in austerity as a solution to economic hard times because that's the intuitively obvious response; it's the common-sense implication of taking everything mankind has learned about domestic resource management through 10,000 years of operating their farms, and extending the same principles to a nation-state. It doesn't work, because a nation-state is not a farm, but that's something it's going to take a while for mankind to get through its collective thick skull.