Where I expose my ignorance of elemental economics

[Horatio Parker]

My understanding is that much of the rise in HC costs were baked into the Medicare expansion under Reagan.

In return for supporting "socialized" medicine, doctors in the AMA/Specialty Society RVS Update Committee (RUC), were permitted to set rates via a special board that meets a couple of times a year.

Its recommendations apply only to Medicare reimbursements, but are often the basis for what private insurers pay for various physician services. Since doctor decisions drive much of the spending in U.S. health care, the committee’s influence on the cost of overall medical spending is enormous

Some of this has been changed under ACA.

 

[SimpleDon]

Until economists actually studied the question it was assumed that raising the minimum wage would always result in some unemployment of the minimum wage workers. But not because the demand for these workers decreased as dismal and colorado say that the demand for workers goes down as the price, the wages, goes up. There are many problems with this rational, not the least of which is if employers hired employees based on supply and demand, that is their price, then any increase in wages would result in unemployment, not just increases for minimum wage workers. But in my substandard basic economics employers only hire workers when they have profitable work for them to do.

This assumption that minimum wage workers would have to be laid off if their wages increased was based on the neoclassical economics theory of "marginal productivity." This theory says that supply and demand will drive the price of the product produced down to cost of the marginal product, the cost without profit of the very last product that can be produced. That the employers will be forced to hire workers until the wages that they have to pay to hire the workers equals exactly the Iabor cost of their marginal product, the product that their labor adds to the production.

Or put simply and slightly incorrectly as, no one will pay more for an hour of work than it adds to their income. Or that if the labor rate increases beyond what is earned from the marginal product added by the added labor, then the employer will fire the worker's whose marginal product is now losing money.

There is nothing in neoclassical economics that supports dismal's and colorado's assertion that there is a demand for labor based on its costs and not how much the added labor will add to production and to the incomes of the owner.

There are possibly some exceptions that can be cited where workers have been hired when it costs the owners all or part of new hires wage. But we don't make economic policies that affect the entire economy based on exceptions.

But on the other side of the coin, whether an increase in wages will result in lay offs and widespread unemployment, there are three possible scenarios,

• dismal's and colorado's one where workers wages exceed the owners' tolerance for the wages that they will pay, even if the owners are making enough money from the sales of the marginal product provided by the workers laid off. We could call it the Coors' scenario where the owners were so blinded by their conservative ideology that they were willing to lose earnings to keep out the unions.
  
• That the added wages force profitable businesses to become less profitable.
  
• That the added wages force the owners to lose money to pay the higher wages.

Once again, like all of the questions regarding economics on this board, this question comes down to one of, how much, how fast and why? In this case, how much and how fast the minimum wage is raised. Obviously, if you raise the minimum wage to a hundred dollars an hour overnight all three of the above will be true.

Likewise, if you raise it ten cents over two years it won't have any impact. On anyone, not even the people who earn the minimum wage.

Why is easily answered. We need to address the imbalance in the economy we started doing thirty five years ago to redistribute income from wages into profits. This has resulted in a large part of the income inequality that you see today. Even if you take the rather improbable position that the supply side economics or Reaganomics policies didn't do what they intended to do, to intentionally increase income inequality to increase the money available for investment, rather that these policies failed, and that unknown and, apparently, unknowable factors caused the current income inequality that started about the same time as the Reaganomics started, then there is no obvious reason to continue and to replace them with policies intended to reverse the income inequality.

This would seem to be true if you believe that we don't have high income inequality right now because we can't reliably determine who makes what income. Or that we have had the benefits promised for Reaganomics but for some reason economists are unable to do what they were able to do in 1980, to add up the costs of all of the products sold in the country, that they can no longer find out who is unemployed and why and that we can no longer figure out how much income people now earn.

Or that income inequality doesn't harm the economy or individuals. Or that people still get promotions and raises. Or that the economy rewards CEO's, other corporate managers, bankers, college graduates who aren't teachers, coupon clippers and other passive income earners, stockbrokers, stockholders, insurance companies, real estate tycoons, hedge fund managers, payday and car title loan operations, pawn shops, hospitals and doctors, etc. with much more income than they did in 1980 now because they earn it, that they deserve it or because of technical changes in the economy that had nothing to with the Reaganomics policy changes or with any of the legislation passed by a Republican Congress or from a 5 to 4 conservative SCOTUS decision or by the now well worn virtual galaxy of other economic factors that can't be named.

 

[coloradoatheist]

The neoclassical argument for how a business will adjust to an increase in costs for a worker is supply and demand, but businesses don't even need classical economics to understand their position. A business is cash in minus cash out. If cash out increases faster than cash in they will run out of business sometime in the future. Most businesses don't have slack to just sell more so they to get to where things were they will need to raise prices (inflation) to offset their losses. The question is how fast they can do this or does the first scenerio win out quicker. And for many jobs, there is no right answer for the number of people who can do the job, they have a minimum, what they would like, and a maximum.

Numerous studies have shown negative impacts to minimum wage workers, so to get around that people who support min wage hike have to try and define it in ways to find a way to find data that says otherwise.

 

[SimpleDon]

I understand all of that.

The inheritance tax is important because it lessens the amount of money that is captured by the wealthy and redistributes it into the real economy of producing products for consumption. The wealth of the wealthy does little to nothing to boost the economy that 99% of the population depends on to live. The money of the wealthy is in the stock market, T-Bills, etc. that don't help the economy or in corporate bonds that are issued by corporations to try to avoid a few percentage points in interest over what a bank would charge them for a loan.

In other words, eat the rich.

You never fail to disappoint. I am arguing we have stop eating the poor and the middle class, that they deserve some of the gains from the increased productivity that they are providing and from the innovation that they provide. I am arguing that we shouldn't be transferring the burden of taxation to them from the rich.

I am arguing that all of the investment that has been raised by eating the wage gains of the poor and the middle class have gone into non-productive investments like the stock market or T-Bills. That our declining wage share over the last thirty five years has reduced the potential of the economy because it has reduced demand. That the modern economy is demand driven, not supply driven like the agrarian economy of the 19th century and before. That this is the reason that supply side economics failed to deliver on its promise of increased investment leading to economic growth and not that excessive regulations and excessive taxation are the reasons for the failure of the expected Reaganomics boom or unknown and apparently unknowable factors in the economy or any of the other nonsense that I see here for the failure of this cherished conservative idea.

That we write regulations because we know from experience that they are needed and not because the government wants to take over the economy or to reduce the growth in the economy. That we should be taxing the rich because they are gaining the most from those taxes. And besides they have the most money that they aren't using to eat, provide shelter and to educate and to care for the children, the future of the nation.

And all that you offer in return are snappy, one like slogans that I want to eat the rich or nonsense about needing infinite pools of profits before the minimum wage can be increased or that wages can be raised more than the recent COLA.

Convert capital to consumer spending--so there won't be capital for the next generation.

An oldie one liner.

In 1980 about half of all corporate profits were reinvested into the businesses. That has dropped to less than one quarter because business investment hasn't kept up with inflation while real business profits have more doubled as a percentage of GDP and more in regards to inflation. This doesn't even take into account the profits that the corporations have successfully transferred overseas to tax havens.

So the question is how much more profits do you think that we need? Concentrate on the business investment number and the corporate profit number which is currently more than four times greater than the amount of business investment. If you believe this isn't sufficient then how much is? Remember that in 1980 half of corporate profits were reinvested back into the businesses and we still managed more business investment as a % of GDP.

Lower tax rate for capital gains is just one of the ways devised over the years to defeat the progressive income tax. In essence corporations become tax havens for the wealthy.

No. From a practical standpoint the capital gains rate is higher than the income tax rate. How about taxing capital gains as ordinary income but inflation adjust the basis value? Few on the right would object to this.

Because most of the capital gains that we see are just inflation, in homes and stocks for example. You would be adjusting one kind of inflation with a completely different type of inflation.

I seem to be constantly explaining the impact of the progressive taxes to you and to others on the right. The highest marginal tax rate is currently about ~39% and the current capital gains tax is ~22%. This is the rate paid for each additional dollar that the rich earn, What is confusing you? That 39 is greater the 22, that the wealthy earn so much that the lesser amounts taxed at a lower rate isn't considered to be important or that hard won tax deductions are considered by the most of the rich to come off of the top and to not factor into the effective tax rate?

You don't seem to realize the amount of effort that corporations put into converting their profits into appearing like capital gains, for the benefit of their shareholders, they disguise maintenance as capital expedience for example. Or they do the same with research expenditure. They write off pollution controls as increasing production, a capital gain. In some states pollution controls are subject to sales taxes so some companies overstate the value of their pollution controls to the state claiming some capital equipment purchases are for pollution control while saying the opposite to the Fed's.

This is why I am a proponent of abandoning the corporate income tax and taxing the corporate profits as the personal income of the shareholders at whatever rate that they pay. It would relieve corporation management of having to run the financial side of the corporation as a tax haven, of having to maximize capital gains and minimizing income. It would relieve a lot of the legalized bribery that goes to politicians to write exemptions for specific corporations into the tax code. It would sharpen their focus back to making a good product and selling it for a fair price.

In other words, companies can't engage in growth instead of paying dividends.

See above. Trust me, paying dividends is far down the list of concerns for the management of a major corporation. There might or might not be legislation or a court ruling in the US that the first responsibility of the management of a corporation is to the stockholders. If there is it is what would be required to make the stockholders more important than the customers, the employees with them first, the government who taxes and regulates them, the public in general, and I am probably forgetting a few, I on heavy pain meds in the hospital.

The stockholders have no real stake in the other than money that is in effect bet on the future success of the company, a success that they haven't in any way contributed to. The profits that they are hoping to make are either from the sale of the stock to another gambler who will buy the stock and provide the previous owner with his profits or they come from the dividends paid out to stockholders, money that could have been used by the corporation for much better things than rewarding passive investors, investing in the business for example or paying higher wages.

No modern CFO would sell stock to raise the money needed for an expansion. These would be either a dilutive SEO, a secondary stock (equity) offering, of newly issued stock or a captive or non-dilutive SEO, a SEO of reserve stock held by the company. The sum total of these is many orders of magnitudes lower than the stock buy back companies engage in because so much of the higher management's pay is tied to the stock price. Once again, money that could be better used.

The main advantage of the corporate income tax is for countries with a positive trade balance. In effect you are taxing the foreigners who buy the products of your country. This advantage could be duplicated easily if we treated the distributed profits of a corporation exactly the same way that we do wages, by withholding a percentage of the distribution and forcing the recipients to file income tax forms to retrieve it.

You're assuming the recipients are individuals.

Stockholders are usually individuals, even if they purchase the stock in mutual funds or even through their retirement funds. Companies are only allowed to purchase stock for limited reasons.

 

[Cheerful Charlie]

The neoclassical argument for how a business will adjust to an increase in costs for a worker is supply and demand, but businesses don't even need classical economics to understand their position. A business is cash in minus cash out. If cash out increases faster than cash in they will run out of business sometime in the future. Most businesses don't have slack to just sell more so they to get to where things were they will need to raise prices (inflation) to offset their losses. The question is how fast they can do this or does the first scenerio win out quicker. And for many jobs, there is no right answer for the number of people who can do the job, they have a minimum, what they would like, and a maximum.

Numerous studies have shown negative impacts to minimum wage workers, so to get around that people who support min wage hike have to try and define it in ways to find a way to find data that says otherwise.

http://www.bloomberg.com/bw/article...bel-economists-endorse-10-dot-10-minimum-wage

It’s getting harder and harder to argue that economists oppose a higher minimum wage. Certainly many do. But seven Nobel prize-winning economists and eight former presidents of the American Economic Association have signed a new letter, released today, urging Congress to raise the federal minimum from its current level of $7.25 an hour to $10.10 by 2016.Says the letter: “At a time when persistent high unemployment is putting enormous downward pressure on wages, such a minimum-wage increase would provide a much-needed boost to the earnings of low-wage workers.”

Addressing the concern that employers would lay off their least-productive workers rather than raise their pay, the letter says, “the weight of evidence now show that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market.”

http://www.epi.org/minimum-wage-statement/
[h=1]Over 600 Economists Sign Letter In Support of $10.10 Minimum Wage[/h]In recent years there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market. Research suggests that a minimum-wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth, and providing some help on the jobs front.

https://en.wikipedia.org/wiki/Minimum_wage_in_the_United_States
A 2013 Center for Economic and Policy Research (CEPR) review of multiple studies since 2000 indicated that there was "little or no employment response to modest increases in the minimum wage." The study indicated 11 reasons for this finding, the most important including: "reductions in labor turnover; improvements in organizational efficiency; reductions in wages of higher earners ('wage compression'); and small price increases."^[37] Another CEPR study in 2014 found that job creation within the United States is faster within states that raised their minimum wage.^[38] In 2014, the state with the highest minimum wage in the nation, Washington, exceeded the national average for job growth in the United States.^[39]

And on and on etc.

 

[Loren Pechtel]

Until economists actually studied the question it was assumed that raising the minimum wage would always result in some unemployment of the minimum wage workers. But not because the demand for these workers decreased as dismal and colorado say that the demand for workers goes down as the price, the wages, goes up. There are many problems with this rational, not the least of which is if employers hired employees based on supply and demand, that is their price, then any increase in wages would result in unemployment, not just increases for minimum wage workers. But in my substandard basic economics employers only hire workers when they have profitable work for them to do.

I see no evidence here.

Or put simply and slightly incorrectly as, no one will pay more for an hour of work than it adds to their income. Or that if the labor rate increases beyond what is earned from the marginal product added by the added labor, then the employer will fire the worker's whose marginal product is now losing money.

There is nothing in neoclassical economics that supports dismal's and colorado's assertion that there is a demand for labor based on its costs and not how much the added labor will add to production and to the incomes of the owner.

And 7 days is very different than a week.

You're saying the same thing from opposite viewpoints.

• dismal's and colorado's one where workers wages exceed the owners' tolerance for the wages that they will pay, even if the owners are making enough money from the sales of the marginal product provided by the workers laid off. We could call it the Coors' scenario where the owners were so blinded by their conservative ideology that they were willing to lose earnings to keep out the unions.

• 
  
  What you are missing is that in almost all cases there are jobs being performed that are only a little above the breakeven point. Raise the cost and you move them below the breakeven point and the company doesn't do that anymore.
  
  

  [*]That the added wages force profitable businesses to become less profitable.

  
  How in the world is this not totally obvious??
  
  

  Likewise, if you raise it ten cents over two years it won't have any impact. On anyone, not even the people who earn the minimum wage.

  
  False. Just because you can't see the effect for the noise doesn't mean it's not there.
  
  

  Why is easily answered. We need to address the imbalance in the economy we started doing thirty five years ago to redistribute income from wages into profits. This has resulted in a large part of the income inequality that you see today. Even if you take the rather improbable position that the supply side economics or Reaganomics policies didn't do what they intended to do, to intentionally increase income inequality to increase the money available for investment, rather that these policies failed, and that unknown and, apparently, unknowable factors caused the current income inequality that started about the same time as the Reaganomics started, then there is no obvious reason to continue and to replace them with policies intended to reverse the income inequality.

  
  The more steps to the production chain the more of total production would be expected to go to profits. If the profit % hadn't risen something would be very wrong.

 

[Loren Pechtel]

In other words, eat the rich.

You never fail to disappoint.

And you never fail to show your lack of understanding of what's actually happening.

I am arguing that all of the investment that has been raised by eating the wage gains of the poor and the middle class have gone into non-productive investments like the stock market or T-Bills.

The stock market provides liquidity and thus drives new investment--it's not non-productive.

That we write regulations because we know from experience that they are needed and not because the government wants to take over the economy or to reduce the growth in the economy. That we should be taxing the rich because they are gaining the most from those taxes. And besides they have the most money that they aren't using to eat, provide shelter and to educate and to care for the children, the future of the nation.

And all that you offer in return are snappy, one like slogans that I want to eat the rich or nonsense about needing infinite pools of profits before the minimum wage can be increased or that wages can be raised more than the recent COLA.

I keep referring to it as eat the rich because that's what it is.

No. From a practical standpoint the capital gains rate is higher than the income tax rate. How about taxing capital gains as ordinary income but inflation adjust the basis value? Few on the right would object to this.

Because most of the capital gains that we see are just inflation, in homes and stocks for example. You would be adjusting one kind of inflation with a completely different type of inflation.

You even admit they're just inflation.

I seem to be constantly explaining the impact of the progressive taxes to you and to others on the right. The highest marginal tax rate is currently about ~39% and the current capital gains tax is ~22%. This is the rate paid for each additional dollar that the rich earn, What is confusing you? That 39 is greater the 22, that the wealthy earn so much that the lesser amounts taxed at a lower rate isn't considered to be important or that hard won tax deductions are considered by the most of the rich to come off of the top and to not factor into the effective tax rate?

What's confusing me is your inability to understand inflation.

Over the last 50 years inflation (to 2010 because my earlier data is by decade) has averages 4.08%. Over the same period the stock market has returned 6.58%. Thus your real profit per year is 2.5%.

On capital gains you paid 6.58% * 22% = 1.45% out of a real gain of 2.5% for a real tax rate of 58%.

Now, in my book 58% > 39%. Capital gains have a real tax rate that's higher than income.

(Note that I omitted dividends from the stock market return because they're taxed separately.)

This is why I am a proponent of abandoning the corporate income tax and taxing the corporate profits as the personal income of the shareholders at whatever rate that they pay. It would relieve corporation management of having to run the financial side of the corporation as a tax haven, of having to maximize capital gains and minimizing income. It would relieve a lot of the legalized bribery that goes to politicians to write exemptions for specific corporations into the tax code. It would sharpen their focus back to making a good product and selling it for a fair price.

In other words, companies can't engage in growth instead of paying dividends.

See above. Trust me, paying dividends is far down the list of concerns for the management of a major corporation. There might or might not be legislation or a court ruling in the US that the first responsibility of the management of a corporation is to the stockholders. If there is it is what would be required to make the stockholders more important than the customers, the employees with them first, the government who taxes and regulates them, the public in general, and I am probably forgetting a few, I on heavy pain meds in the hospital.

You missed my point entirely. A big, stable company will not be harmed by your approach. A growing company normally pays no dividends, though--but your approach makes that a substantial tax burden on the investor. You just made growth stock very unattractive. Expect to see very few new businesses.

No modern CFO would sell stock to raise the money needed for an expansion. These would be either a dilutive SEO, a secondary stock (equity) offering, of newly issued stock or a captive or non-dilutive SEO, a SEO of reserve stock held by the company. The sum total of these is many orders of magnitudes lower than the stock buy back companies engage in because so much of the higher management's pay is tied to the stock price. Once again, money that could be better used.

Anything to justify eating capital.

The main advantage of the corporate income tax is for countries with a positive trade balance. In effect you are taxing the foreigners who buy the products of your country. This advantage could be duplicated easily if we treated the distributed profits of a corporation exactly the same way that we do wages, by withholding a percentage of the distribution and forcing the recipients to file income tax forms to retrieve it.

You're assuming the recipients are individuals.

Stockholders are usually individuals, even if they purchase the stock in mutual funds or even through their retirement funds. Companies are only allowed to purchase stock for limited reasons.

You realize how much is held by things like pension funds??

- - - Updated - - -

The neoclassical argument for how a business will adjust to an increase in costs for a worker is supply and demand, but businesses don't even need classical economics to understand their position. A business is cash in minus cash out. If cash out increases faster than cash in they will run out of business sometime in the future. Most businesses don't have slack to just sell more so they to get to where things were they will need to raise prices (inflation) to offset their losses. The question is how fast they can do this or does the first scenerio win out quicker. And for many jobs, there is no right answer for the number of people who can do the job, they have a minimum, what they would like, and a maximum.

Numerous studies have shown negative impacts to minimum wage workers, so to get around that people who support min wage hike have to try and define it in ways to find a way to find data that says otherwise.

http://www.bloomberg.com/bw/article...bel-economists-endorse-10-dot-10-minimum-wage

It’s getting harder and harder to argue that economists oppose a higher minimum wage. Certainly many do. But seven Nobel prize-winning economists and eight former presidents of the American Economic Association have signed a new letter, released today, urging Congress to raise the federal minimum from its current level of $7.25 an hour to $10.10 by 2016.Says the letter: “At a time when persistent high unemployment is putting enormous downward pressure on wages, such a minimum-wage increase would provide a much-needed boost to the earnings of low-wage workers.”

Addressing the concern that employers would lay off their least-productive workers rather than raise their pay, the letter says, “the weight of evidence now show that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market.”

http://www.epi.org/minimum-wage-statement/
[h=1]Over 600 Economists Sign Letter In Support of $10.10 Minimum Wage[/h]In recent years there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market. Research suggests that a minimum-wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth, and providing some help on the jobs front.

https://en.wikipedia.org/wiki/Minimum_wage_in_the_United_States
A 2013 Center for Economic and Policy Research (CEPR) review of multiple studies since 2000 indicated that there was "little or no employment response to modest increases in the minimum wage." The study indicated 11 reasons for this finding, the most important including: "reductions in labor turnover; improvements in organizational efficiency; reductions in wages of higher earners ('wage compression'); and small price increases."^[37] Another CEPR study in 2014 found that job creation within the United States is faster within states that raised their minimum wage.^[38] In 2014, the state with the highest minimum wage in the nation, Washington, exceeded the national average for job growth in the United States.^[39]

And on and on etc.

Some leftist organizations found economists that support leftist policies. Duh!

Until you can express it in % of economists rather than the number signing the letter it means very little.

 

[Cheerful Charlie]

The neoclassical argument for how a business will adjust to an increase in costs for a worker is supply and demand, but businesses don't even need classical economics to understand their position. A business is cash in minus cash out. If cash out increases faster than cash in they will run out of business sometime in the future. Most businesses don't have slack to just sell more so they to get to where things were they will need to raise prices (inflation) to offset their losses. The question is how fast they can do this or does the first scenerio win out quicker. And for many jobs, there is no right answer for the number of people who can do the job, they have a minimum, what they would like, and a maximum.

Numerous studies have shown negative impacts to minimum wage workers, so to get around that people who support min wage hike have to try and define it in ways to find a way to find data that says otherwise.

http://www.bloomberg.com/bw/article...bel-economists-endorse-10-dot-10-minimum-wage

It’s getting harder and harder to argue that economists oppose a higher minimum wage. Certainly many do. But seven Nobel prize-winning economists and eight former presidents of the American Economic Association have signed a new letter, released today, urging Congress to raise the federal minimum from its current level of $7.25 an hour to $10.10 by 2016.Says the letter: “At a time when persistent high unemployment is putting enormous downward pressure on wages, such a minimum-wage increase would provide a much-needed boost to the earnings of low-wage workers.”

Addressing the concern that employers would lay off their least-productive workers rather than raise their pay, the letter says, “the weight of evidence now show that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market.”

http://www.epi.org/minimum-wage-statement/
Over 600 Economists Sign Letter In Support of $10.10 Minimum Wage

In recent years there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market. Research suggests that a minimum-wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth, and providing some help on the jobs front.

https://en.wikipedia.org/wiki/Minimum_wage_in_the_United_States
A 2013 Center for Economic and Policy Research (CEPR) review of multiple studies since 2000 indicated that there was "little or no employment response to modest increases in the minimum wage." The study indicated 11 reasons for this finding, the most important including: "reductions in labor turnover; improvements in organizational efficiency; reductions in wages of higher earners ('wage compression'); and small price increases."^[37] Another CEPR study in 2014 found that job creation within the United States is faster within states that raised their minimum wage.^[38] In 2014, the state with the highest minimum wage in the nation, Washington, exceeded the national average for job growth in the United States.^[39]

And on and on etc.

Some leftist organizations found economists that support leftist policies. Duh!

Until you can express it in % of economists rather than the number signing the letter it means very little.

Ahhhhh, the sound of shifting goal posts! When we have 7 Nobel Laureates and numerous eminent economists pointing out studies do not support Minimum Wage Denial from the right wing of the Congress, trying to brush of that will a demand for "% of economists" simply does not cut the mustard.

You can find right winged economists of course, but they seem to ignore the studies that debunk their claims. And it is the facts that matter.

When you have so many eminent economists pointing out studies do not support claims raising MW is bad policy, trying to brush them with the claim they are some sort of "leftist organizations" rings hollow.

There is a huge research literature associated with this issue, as detailed below. Among the extended primers worth considering is the 2014 book “What Does the Minimum Wage Do?” by Dale Belman of Michigan State University and Paul Wolfson of the Tuck School of Business at Dartmouth. That work synthesizes some 200 papers. In their conclusion, they write:

Evidence leads us to conclude that moderate increases in the minimum wage are a useful means of raising wages in the lower part of the wage distribution that has little or no effect on employment and hours. This is what one seeks in a policy tool, solid benefits with small costs. That said, current research does not speak to whether the same results would hold for large increases in the minimum wage.
​

- See more at: http://journalistsresource.org/stud...raising-the-minimum-wage#sthash.Ve0vR5Ok.dpuf

 

[SimpleDon]

The neoclassical argument for how a business will adjust to an increase in costs for a worker is supply and demand, but businesses don't even need classical economics to understand their position. A business is cash in minus cash out. If cash out increases faster than cash in they will run out of business sometime in the future. Most businesses don't have slack to just sell more so they to get to where things were they will need to raise prices (inflation) to offset their losses. The question is how fast they can do this or does the first scenerio win out quicker. And for many jobs, there is no right answer for the number of people who can do the job, they have a minimum, what they would like, and a maximum.

Numerous studies have shown negative impacts to minimum wage workers, so to get around that people who support min wage hike have to try and define it in ways to find a way to find data that says otherwise.

http://www.bloomberg.com/bw/article...bel-economists-endorse-10-dot-10-minimum-wage

It's getting harder and harder to argue that economists oppose a higher minimum wage. Certainly many do. But seven Nobel prize-winning economists and eight former presidents of the American Economic Association have signed a new letter, released today, urging Congress to raise the federal minimum from its current level of $7.25 an hour to $10.10 by 2016.Says the letter: “At a time when persistent high unemployment is putting enormous downward pressure on wages, such a minimum-wage increase would provide a much-needed boost to the earnings of low-wage workers.”

Addressing the concern that employers would lay off their least-productive workers rather than raise their pay, the letter says, “the weight of evidence now show that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market.”

http://www.epi.org/minimum-wage-statement/
[h=1]Over 600 Economists Sign Letter In Support of $10.10 Minimum Wage[/h]In recent years there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market. Research suggests that a minimum-wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth, and providing some help on the jobs front.

https://en.wikipedia.org/wiki/Minimum_wage_in_the_United_States
A 2013 Center for Economic and Policy Research (CEPR) review of multiple studies since 2000 indicated that there was "little or no employment response to modest increases in the minimum wage." The study indicated 11 reasons for this finding, the most important including: "reductions in labor turnover; improvements in organizational efficiency; reductions in wages of higher earners ('wage compression'); and small price increases."^[37] Another CEPR study in 2014 found that job creation within the United States is faster within states that raised their minimum wage.^[38] In 2014, the state with the highest minimum wage in the nation, Washington, exceeded the national average for job growth in the United States.^[39]

And on and on etc.

Even if there is some unemployment, and there is no reason to believe that there will be for moderate increases spread over time, it is something that we have to do. We have to raise wages and lower profits.

As it is right now, incomes and wealth will continue to accumulate in ever fewer, increasingly wealthy and therefore powerful people. This tendency for capitalism to over reward the capitalists and to under reward workers and to drive workers into debt was the main message of Adam Smith's The Wealth of Nations, the famous invisible hand was only mentioned one time and it had nothing to do with the free market but to say that we have nothing to fear from foreign trade taking away our jobs because no one would be stupid enough to do it, because it is like an invisible hand guides people to buy domestic production.

What was Smith's solution for the rentiers who overcharge for the use of their capital? He saw only one entity strong enough to take them on, a democratically elected government. We are hell bent to prove him wrong. Smith couldn't imagine a time when the rich rentiers would have so much power that they can convince one half of the voters in a democracy to vote against their own self-interest. A time like today in the US.

In spite of the right's instance that economists have lost the ability to do statistics and even simple math, they haven't and in fact they have gained a large number of tools in the thirty five years of Reaganomics.

We now know that monetary policies alone are not sufficient to keep the economy out of serious recessions started by financial sector malfeasance. We need to re-regulate the financial sector.

We now know that monetary policies aren't sufficient to recover from a serious recession, the trillions of dollars that the Fed created just sat in the banks' reserve accounts because there was insufficient demand and the loans that the missing demand would have generated were not made.

We now know that fiscal controls are the only ones that work in a serious recession. And that the best way for fiscal policies to be structured for preventing or mitigating a serious recession or depression is to have the policies kick in automatically, like the unemployment compensation does and other parts of the social safety net do. Relying on Congress to quickly pass anything other than bailouts for the wealthy ignores the influence of the know nothing party.

 

[SimpleDon]

Until economists actually studied the question it was assumed that raising the minimum wage would always result in some unemployment of the minimum wage workers. But not because the demand for these workers decreased as dismal and colorado say that the demand for workers goes down as the price, the wages, goes up. There are many problems with this rational, not the least of which is if employers hired employees based on supply and demand, that is their price, then any increase in wages would result in unemployment, not just increases for minimum wage workers. But in my substandard basic economics employers only hire workers when they have profitable work for them to do.

I see no evidence here.

A typical Loren one line non sequitur. You really have to come out of that shell and tell us what you really think.

So what don't you see any evidence for? That ...

1. ... economists largely assumed before that an increase in the minimum wage results in unemployment?
2. ... the reason that they thought this wasn't supply and demand (but the theory of marginal productivity?)
3. ... when they studied the question that it was largely discovered that a moderate increase doesn't result in unemployment?
4. ... that there are many problems with the assumption that employers hire based on supply and demand?
5. ... that if employers hired based on supply and demand that any wage increase would result in unemployment?
6. ... not just the minimum wage workers?
7. ... by and large employers only hire workers when they have work for them to do?

Or put simply and slightly incorrectly as, no one will pay more for an hour of work than it adds to their income. Or that if the labor rate increases beyond what is earned from the marginal product added by the added labor, then the employer will fire the worker's whose marginal product is now losing money.

There is nothing in neoclassical economics that supports dismal's and colorado's assertion that there is a demand for labor based on its costs and not how much the added labor will add to production and to the incomes of the owner.

And 7 days is very different than a week.

Another non-sequitur.

You're saying the same thing from opposite viewpoints.

Yes, something that is true is quite often arrived from different points of view. You should try it some time.

• dismal's and colorado's one where workers wages exceed the owners' tolerance for the wages that they will pay, even if the owners are making enough money from the sales of the marginal product provided by the workers laid off. We could call it the Coors' scenario where the owners were so blinded by their conservative ideology that they were willing to lose earnings to keep out the unions.

• 
  
  What you are missing is that in almost all cases there are jobs being performed that are only a little above the breakeven point. Raise the cost and you move them below the breakeven point and the company doesn't do that anymore.

• 
  
  And what you are missing is that the reason that economists could before say that there are jobs that are being performed a little above the break even point is because of the discredited theory of marginal productivity. You can't use a theory that you don't accept, that unemployment results from marginal productivity, to prove a theory that you do accept, that the unemployment results from the employers reluctance. to pay a certain wage.
  
  Marginal productivity is discredited for a lot of reasons. It requires that the price of goods and services is set by the blind mechanism of supply and demand out of the control of the producers. Prices in the real economy are set by the producers based on the average, not the marginal, costs of production plus a desired profit, a comfortable profit that the owners can accept but not so high that the production doesn't meet its goals. Every business that I know prices this way to make sure they make enough to cover the fixed overheads including the labor bill, to payback the investment in the production facilities and not too high of profit that it hurts sales.
  
  Your and dismal's theory of why an increase in the minimum wages requires the layoffs of the minimum wage workers because the employers' supply and demand for workers, this theory taken as a whole requires that,
  1. ... only the minimum wage workers wages are subject to the supply and demand of the employer because no other wage increase results in layoffs.
  2. ... the only workers who are subjected to the determination of their productivity at the marginal cost point are the minimum wage workers who currently earn $15,500 a year. Not the CEO's who average 3 million dollars a year.
  3. ... supply and demand set prices except when the minimum wage is increased, then supply and demand is suspended and the producer can raise the price. Then supply and demand wakes up and takes up setting the for the products except that the price can never go back under what the producer set to compensate for the increase in the minimum wage.
  4. ... this seemingly paradox is because so many previously profitable companies are driven into bankruptcy by even the smallest increase in the minimum wage, and no other wage, reducing the supply until it supports the producer set price when supply and demand were suspended.
  5. ... no one of you has yet explained why companies layoff workers and still have to raise prices and with all of this some still go bankrupt?
  6. ... and no one has answered my repeated complaint that if employers layoff workers because the minimum wage goes up then they lose the production that the laid off workers produced. Long with the production they the profit and the fixed overhead coverage of the lost production, making every other product that they sell less profitable. In most businesses they will lose more money than they would if they just went ahead and paid the higher wage rates.
  
  

  [*]That the added wages force profitable businesses to become less profitable.

  
  How in the world is this not totally obvious??

  
  Of course it is obvious. I am forced to not only state the obvious but to pound on it repeatedly when talking to the members of the right, such as,
  
  • The reason that employers hire people is because they need them to do work to increase production.
  • That we are just as able to add up all of the products produced in the US to calculate GDP as we were in 1980, just as we are able to calculate the number of the unemployed and the inflation rate, all close enough to be indicative and useful.
  • You don't have to have an infinite pool of profits before you can pay higher wages or more taxes.
  • That there is nothing natural about the economy, it is all the invention of man.
  • The so-called self-regulating, self-organizing free market is a fantasy, it has never existed, it can never exist.
  • Supply and demand don't set prices.
  
  These are also so obvious that I shouldn't have to repeat them over and over. I don't have to when I am talking to economists and the sane, only when I am talking to Austrians or Libertarians or others of the deluded economics set were economics is separated from any connection to reality and has to be bent to serve an ideology that is set in stone.
  
  

  Likewise, if you raise it ten cents over two years it won't have any impact. On anyone, not even the people who earn the minimum wage.

  
  False. Just because you can't see the effect for the noise doesn't mean it's not there.

  
  I give up. Now if the effect is so small it is a stonewall certainty that it exists!
  
  

  Why is easily answered. We need to address the imbalance in the economy we started doing thirty five years ago to redistribute income from wages into profits. This has resulted in a large part of the income inequality that you see today. Even if you take the rather improbable position that the supply side economics or Reaganomics policies didn't do what they intended to do, to intentionally increase income inequality to increase the money available for investment, rather that these policies failed, and that unknown and, apparently, unknowable factors caused the current income inequality that started about the same time as the Reaganomics started, then there is no obvious reason to continue and to replace them with policies intended to reverse the income inequality.

  
  The more steps to the production chain the more of total production would be expected to go to profits. If the profit % hadn't risen something would be very wrong.

  
  Continue on babbling if it makes you feel better. I don't know how to address this, there is so much wrong with it. It doesn't have any even small relation to my paragraph. I can only assume that you didn't have an answer to the many points that I raised in the paragraph so you regurgitated this random piece of gibberish.
  
  No, the more production steps that you have in production does not mean that you have more profit in the final price, if that is what you meant to say.
  
  Profit is what is left over after the costs of production are paid off.
  
  In my business, the classic heavy industrial capital machinery we found that generally the more production steps we had the higher the costs and the lower the profits. Definitely if we paid other people to do some of the production we had higher costs and lower profits. The things that we subbed out were specials like spin casting.
  
  The only exception was when we could buy subsidized steel and labor. The steel industry is considered by most nations to be strategic Industry. As a result it is seriously over built around the world. Countries would build steel plants because they thought that they needed them for defense and then they couldn't keep them operating on commercial orders because there is so much over production around the world. So the government subsidizes the commercial orders. I personally bought subsidized steel as finished or partially finished parts from Spain, Turkey, Iran, Brazil, India and the PRC.

 

[Loren Pechtel]

I see no evidence here.

A typical Loren one line non sequitur. You really have to come out of that shell and tell us what you really think.

So what don't you see any evidence for? That ...

I see a declaration, not evidence. An argument based on <x> people signing something means very little unless <x> is a substantial portion of the experts in a field.

 

[Cheerful Charlie]

A typical Loren one line non sequitur. You really have to come out of that shell and tell us what you really think.

So what don't you see any evidence for? That ...

I see a declaration, not evidence. An argument based on <x> people signing something means very little unless <x> is a substantial portion of the experts in a field.

So, several hundred eminent economists including 7 Nobel Laureates basing their claims on many competent studies on Minimum Wages means nothing?

 

[Loren Pechtel]

I see a declaration, not evidence. An argument based on <x> people signing something means very little unless <x> is a substantial portion of the experts in a field.

So, several hundred eminent economists including 7 Nobel Laureates basing their claims on many competent studies on Minimum Wages means nothing?

If there are a few thousand economists in the world that means something. If there are some tens of thousands it means basically nothing. Without that key piece of information we can't tell if this matters or not.

 

[Cheerful Charlie]

So, several hundred eminent economists including 7 Nobel Laureates basing their claims on many competent studies on Minimum Wages means nothing?

If there are a few thousand economists in the world that means something. If there are some tens of thousands it means basically nothing. Without that key piece of information we can't tell if this matters or not.

It means nothing when numerous eminent, not run of the mill, but very well qualified economists bother to sign a statement supporting a position? Does this mean mediocre economists' opinions matter despite their ignoring studies demonstrating they are wrong?

 

[Loren Pechtel]

If there are a few thousand economists in the world that means something. If there are some tens of thousands it means basically nothing. Without that key piece of information we can't tell if this matters or not.

It means nothing when numerous eminent, not run of the mill, but very well qualified economists bother to sign a statement supporting a position? Does this mean mediocre economists' opinions matter despite their ignoring studies demonstrating they are wrong?

You can't make this argument without knowing how many are on the other side.

 

[SimpleDon]

You never fail to disappoint.

And you never fail to show your lack of understanding of what's actually happening.

Yet you can't muster more than one line non-sequiturs to support your contention that I don't understand anything.

The genesis of this entire thread is that I was told that I don't understand basic economics. So I listed in the OP everything that I understand about basic economics and asked those who believe that I don't understand anything of what is happening to read through the list and to laugh at my ignorance and to list those things that missed and those that I got wrong. After what about 120 posts to the thread only one of those concerned the list in which I exposed my child like understanding of basic economics.

You for example, haven't pointed out where I am misunderstanding basic economics. You only seem to chime in when my conclusions clash with your cherished pre-conceived ideas.

I am arguing that all of the investment that has been raised by eating the wage gains of the poor and the middle class have gone into non-productive investments like the stock market or T-Bills.

The stock market provides liquidity and thus drives new investment--it's not non-productive.

You have chanted this slogan before. I wonder if it is suppose to counter my rather detailed explanation of why the stock market is not especially important to the economy that most people depend on for their very survival.Or whether it is just one of your slogans that you use as a shield against against ideas and conclusions that go against your scared beliefs.

Like most of your repeated chants this one really doesn't say anything. I don't know if you have ever really thought about this saying. Liquidity is nothing more than the ease with which some asset can be converted into cash. Yes, stock has a very high liquidity.

My CEO said that stockholders could sell their shares while reading the Wall Street Journal in the toilet. This is one of the reasons that I gave why the management of a company doesn't value of the stake of the stockholders in the company very highly. I am glad that you understand this point.

On to the rest of the saying, does liquidity in and of itself drive investment? This is to me, nonsense. Of course, in my post, the one that you thought that this slogan was an answer to, I was talking about business investment, the kind that builds production facilities that provide jobs, investments that produce products for consumption in the economy.

The stock markets and the stockholders themselves have done a marvelous con job convincing people that buying stock is the same as this kind of real, productive business investment that provides jobs and that the economy depends on to grow. They call buying stock (or hedge fund shares or futures or any of the myriad of products that Wall Street has invented) "investing" and all of the products that are bought and sold are therefore "investments." But no matter what they call them they are nothing but paper filled with nothing but promises. And they don't build production and they provide jobs only for the people who sell them and who make the promises, that is for Wall Street.

That we write regulations because we know from experience that they are needed and not because the government wants to take over the economy or to reduce the growth in the economy. That we should be taxing the rich because they are gaining the most from those taxes. And besides they have the most money that they aren't using to eat, provide shelter and to educate and to care for the children, the future of the nation.

And all that you offer in return are snappy, one like slogans that I want to eat the rich or nonsense about needing infinite pools of profits before the minimum wage can be increased or that wages can be raised more than the recent COLA.

I keep referring to it as eat the rich because that's what it is.

Double down on the slogans! Keep repeating them until I believe or go away. How middle school of you.

But apparently you can't or you won't offer any kind of argument against mine and engage in any kind of discussion beyond these one line missives that finally don't say anything coherent, anything that advances the discussion.

I don't want to eat the rich. Some of my best friends are rich. I lived part of my boyhood across the street from the Bass brothers family compound in Ft. Worth. I went to school with the rich in a series of rather good private schools, always on scholarship. I got my MBA with one of the lesser Koch brothers. I probably owed much more of my success in the corporate world than I would want to admit to the fact that I could talk to the rich on a more even basis after I established my "bona fides" of schools, family, military and friends.

I want to slowly reverse the federal government's role in the intentional transfer of income and wealth to the rich from the 90% and to increase the wages paid to the 90%.

Apparently you are in favor of continuing this government sponsored transfer of income to the already rich. Can you form any more of a reason why you believe in this beyond pejorative sloganeering or is this all that you have?

============== continued below later ==============​

 

[SimpleDon]

============== continued from above ==============​

No. From a practical standpoint the capital gains rate is higher than the income tax rate. How about taxing capital gains as ordinary income but inflation adjust the basis value? Few on the right would object to this.

Because most of the capital gains that we see are just inflation, in homes and stocks for example. You would be adjusting one kind of inflation with a completely different type of inflation.

You even admit they're just inflation.

I seem to be constantly explaining the impact of the progressive taxes to you and to others on the right. The highest marginal tax rate is currently about ~39% and the current capital gains tax is ~22%. This is the rate paid for each additional dollar that the rich earn, What is confusing you? That 39 is greater the 22, that the wealthy earn so much that the lesser amounts taxed at a lower rate isn't considered to be important or that hard won tax deductions are considered by the most of the rich to come off of the top and to not factor into the effective tax rate?

What's confusing me is your inability to understand inflation.

There is no reason to be confused about what inflation is. Inflation is a general, economy wide increase in prices.

Over the last 50 years inflation (to 2010 because my earlier data is by decade) has averages 4.08%. Over the same period the stock market has returned 6.58%. Thus your real profit per year is 2.5%.

On capital gains you paid 6.58% * 22% = 1.45% out of a real gain of 2.5% for a real tax rate of 58%.

Now, in my book 58% > 39%. Capital gains have a real tax rate that's higher than income.

(Note that I omitted dividends from the stock market return because they're taxed separately.)

Wow, you are confused. You confuse inflation with tax rates. I don't know how much I can help you. It is something that I don't think that I have encountered before. You don't realize that they are different things?

Taxes aren't paid on percentages. They are paid on dollar amounts. If the stock market, say a mutual fund, paid you 100 dollars in capital gains you would owe 22 dollars in capital gains tax. If the mutual fund paid you 100 dollars in dividends and you are paying the top marginal tax rate you would owe 39 dollars in income tax. And 39 dollars is more than 22 dollars.

If you want to want to calculate the effective tax rate then you do it like this. First of all you have to cut the inflation rate in half because the full inflation only applied to first day's capital gains and the last day's capital gains wasn't affected by the inflation at all. So you can only use 2% as last year's inflation.

I will spare you the pain of having to understand the mathematical process of normalization and use the simple example above. 2% of 100 dollars is 2 dollars, to belabor the obvious. So the real value of the nominal 100 dollars is only 98 dollars at the end of the year. If you want to confuse tax rates with inflation, and I don't see any reason to do that, the absolute best that you could say would be that real capital gains tax rate is 24%, with 22 dollar going to the government and 2 dollars going to your strained definition of inflation is like taxes.

But you have to remember that even this doesn't close the gap between the income tax rate and the capital gains tax rate. Because in essence inflation doesn't devalue real assets like businesses and homes, it devalues the money that the assets are valued in. So you would have to devalue the money that you are paid in dividends that you have to pay income tax on in the same way that you did for the capital gains. For the dividends then 39 dollars would go to the government and 2 dollars to the "inflation is like taxes" misconception for a real tax rate of 41%. And since I am forced to state the obvious, 41% is greater than 24%.

============== continued below later ==============​

 

[Loren Pechtel]

I am arguing that all of the investment that has been raised by eating the wage gains of the poor and the middle class have gone into non-productive investments like the stock market or T-Bills.

The stock market provides liquidity and thus drives new investment--it's not non-productive.

You have chanted this slogan before. I wonder if it is suppose to counter my rather detailed explanation of why the stock market is not especially important to the economy that most people depend on for their very survival.Or whether it is just one of your slogans that you use as a shield against against ideas and conclusions that go against your scared beliefs.

And what you are missing is that the portion of the economy that people depend on for survival is not the only thing that matters. In a world where you are eating the capital to make people happy now the stock market doesn't matter. We have a good example of how that turns out, though--Venezuela. Eat the capital, the economy runs down.

I want to slowly reverse the federal government's role in the intentional transfer of income and wealth to the rich from the 90% and to increase the wages paid to the 90%.

Apparently you are in favor of continuing this government sponsored transfer of income to the already rich. Can you form any more of a reason why you believe in this beyond pejorative sloganeering or is this all that you have?

The thing is I don't see this government sponsored transfer you refer to. Rather, I see a lack of the previous government sponsored transfer from rich to poor. Also, I see our supply chain becoming deeper and deeper as our products are more complex. The more effort needed to turn raw materials into consumer goods the greater a percentage of the economy goes to companies.

 

[lpetrich]

Assume a Perfect World | Thoughts from the Frontline Investment Newsletter | Mauldin Economics has that engineer, chemist, and economist joke.

The engineer proposes to open the cans with a rock, and the chemist proposes to heat the cans. The economist says "First, assume a can opener …"

EconPapers: Team payroll and team performance in major league baseball: 1985-2002

Abstract: This paper examines the relationship between team payroll and team performance in major league baseball from 1985 to 2002. The results indicate that the relationship has changed over time. Unlike the early years, there is now a much clearer relationship between payroll and performance. Specifically, in the latter part of the 1990s and continuing into the 21st century, the greater the team payroll and the more equally this payroll is distributed among team members, the better the on-field performance of the team. This is a problem of particular concern because of the growing disparity in team payrolls which, in turn, affects the competitive balance of the sport. This growing disparity was also at the heart of last year's contract negotiations between players and owners.

Some people will find this result very counterintuitive. Such people often seem to think that most of the "work" is done by a few very high-ranking players, when it's the entire team that's needed. Such people likely feel that a relatively egalitarian team pays its top players too little and its non-top players too much, and that that team would therefore be a failure. But that's not what the authors of this paper had found.

 

[Loren Pechtel]

============== continued from above ==============​

No. From a practical standpoint the capital gains rate is higher than the income tax rate. How about taxing capital gains as ordinary income but inflation adjust the basis value? Few on the right would object to this.

Because most of the capital gains that we see are just inflation, in homes and stocks for example. You would be adjusting one kind of inflation with a completely different type of inflation.

You even admit they're just inflation.

I seem to be constantly explaining the impact of the progressive taxes to you and to others on the right. The highest marginal tax rate is currently about ~39% and the current capital gains tax is ~22%. This is the rate paid for each additional dollar that the rich earn, What is confusing you? That 39 is greater the 22, that the wealthy earn so much that the lesser amounts taxed at a lower rate isn't considered to be important or that hard won tax deductions are considered by the most of the rich to come off of the top and to not factor into the effective tax rate?

What's confusing me is your inability to understand inflation.

There is no reason to be confused about what inflation is. Inflation is a general, economy wide increase in prices.

Over the last 50 years inflation (to 2010 because my earlier data is by decade) has averages 4.08%. Over the same period the stock market has returned 6.58%. Thus your real profit per year is 2.5%.

On capital gains you paid 6.58% * 22% = 1.45% out of a real gain of 2.5% for a real tax rate of 58%.

Now, in my book 58% > 39%. Capital gains have a real tax rate that's higher than income.

(Note that I omitted dividends from the stock market return because they're taxed separately.)

Wow, you are confused. You confuse inflation with tax rates. I don't know how much I can help you. It is something that I don't think that I have encountered before. You don't realize that they are different things?

Taxes aren't paid on percentages. They are paid on dollar amounts. If the stock market, say a mutual fund, paid you 100 dollars in capital gains you would owe 22 dollars in capital gains tax. If the mutual fund paid you 100 dollars in dividends and you are paying the top marginal tax rate you would owe 39 dollars in income tax. And 39 dollars is more than 22 dollars.

If you want to want to calculate the effective tax rate then you do it like this. First of all you have to cut the inflation rate in half because the full inflation only applied to first day's capital gains and the last day's capital gains wasn't affected by the inflation at all. So you can only use 2% as last year's inflation.

A reasonable argument if you were selling last year's purchases on Jan 1st. You're generally not, though. Assuming purchases/sales not timed for a tax benefit the average effect is taking the full inflation rate.

But you have to remember that even this doesn't close the gap between the income tax rate and the capital gains tax rate. Because in essence inflation doesn't devalue real assets like businesses and homes, it devalues the money that the assets are valued in. So you would have to devalue the money that you are paid in dividends that you have to pay income tax on in the same way that you did for the capital gains. For the dividends then 39 dollars would go to the government and 2 dollars to the "inflation is like taxes" misconception for a real tax rate of 41%. And since I am forced to state the obvious, 41% is greater than 24%.

Total misdirection. Yes, the assets aren't devalued--but nobody said they were. Rather, there is a phantom increase in value due to inflation that's being subject to a very real tax.