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Posted by Tyler Cowen

That is a reader request.  I used to think the ideal tax rate on corporations should be zero, but that is no longer my view.  For one thing, too many individuals would find ways to self-incorporate, thereby avoiding personal income taxes on labor income.  Note that a small corporation controlled by you can return real income to you in a variety of non-taxable or less-taxed ways.

Furthermore, tax-exempt institutions such as non-profits and pension fund would end up owning too many corporations, to the detriment of (non-tax) efficiency.  While pension funds eventually must pay out that income in the form of pensions, those often go to high-wealth, low income elderly individuals, and thus would never end up taxed at such a high rate.

I now think that for the United States the tax rate on corporate income should be in the range of 18-25 percent, depending of course on what other decisions we make with our budget and tax systems.  It also would work to simply target the OECD average of the corporate rate.

A further question is whether the case for a zero corporate rate would be stronger if we shifted from income to consumption taxation.  That depends how easy it might be to partially evade the consumption tax, say by spending money abroad.  In general, to the extent evasion is possible that favors lower marginal tax rates but levied on a greater number of distinct points in the system, including in this case on the corporate veil.

I thank Megan McArdle for a useful conversation related to these points.

The post Should there be a tax on corporate income at all. For and against. appeared first on Marginal REVOLUTION.

What I’ve been reading

Oct. 23rd, 2017 04:57 am
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Posted by Tyler Cowen

1. Building the Intentional University: Minerva and the Future of Higher Education, edited by Stephen M. Kosslyn and Ben Nelson.  The new university Minerva explains its educational philosophy, imagining redesigning higher ed from scratch.  I would do something very similar to what they did, and this book explains the curricular philosophy and practice in great detail.

2. Olivier Roy, In Search of the Lost Orient: An Interview.  There should be a book like this for every substantive thinker, namely a very long, book-length interview with frank rather than perfunctory answers.  The dialog covers Afghanistan, Yemen, 1968 Paris and radicalism, China, “political Islam,” and women (ahem), among other topics.  Recommended.

3. Aaron Carroll, The Bad Food Bible: How and Why to Eat Sinfully.  Yes, that is the Aaron Carroll, the one who writes about health care policy.  What does the evidence actually say about which foods are good and bad for you?  I’ll just say my diet is healthier than I had thought, and beware added sugar.

I have only browsed Abbas Amanat’s Iran: A Modern History, but it appears to be a very readable and highly useful 908 pp. overview of Persian/Iranian history, though less theoretical and conceptual than what an economist might be looking for.

Harvey Sachs, Toscanini: A Musician of Conscience, is a very high quality book, I would have read more of it except I can’t stand listening to Toscanini.

Eric A. Posner has the forthcoming Last Resort: The Financial Crisis and the Future of Bailouts.  He argues that much of what was done was not fully legal.

Dani Rodrik’s Straight Talk on Trade: Ideas for a Sane World Economy is a very good introduction to Rodrik’s basic ideas on trade.

The post What I’ve been reading appeared first on Marginal REVOLUTION.

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Posted by Tyler Cowen

Re: the rebuilding attempts of the Philadelphia 76ers:

[John] Wall shed light on an underrated issue when he said: “The toughest thing you have is two young players that want to be great. Sometimes it might work, and sometimes it might not work.”

Think about that. Here’s what Wall is saying: It’s easier for stars to coexist when there is more separation of age and aspiration and an understanding of the hierarchy. Wall and Beal figured it out. The Sixers have three young potential all-stars trying to mix individual accolades and team success at once.

Wizards center Marcin Gortat cited asymmetric information:

“You know what the hardest thing for the young man is?” Gortat said during a recent interview. “We all enjoy diamonds. We all enjoy women. We all enjoy cars and beautiful houses, trips, the best parties and the life. The hardest thing is to come at 6 o’clock in the morning to the gym when nobody watches you. It’s easy to play when you have 20,000 people in the stands — women, cheerleaders, actresses, models, front-row celebrities — but it’s really hard to wake up at 6 o’clock in the morning and go to the gym and work on your left hand. This is the hardest part, when nobody’s watching.”

Here is the full Jerry Bewer story.  I watched two games with Philadelphia and Milwaukee, to update my knowledge of the NBA a bit, and now I’ll return to my rabbit hole for a while.

The post The problem with The Process, toward a theory of management appeared first on Marginal REVOLUTION.

Sunday assorted links

Oct. 22nd, 2017 12:08 pm
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Posted by Tyler Cowen

1.  Is the BBC tailoring some content to do away with the plot?

2. Mark Koyama reviews Peter Leeson.

3. Paul Krugman responds on corporate tax incidence.  I see this as a classic case of “as usual the truth lies somewhere in between.”  In response to Paul, foreign capital goes after American rents all the time (ask Toyota), exchange rate overshooting models have little validity in the data (“news” moves exchange rates), and I don’t see why the long-run is a bad guide to tax policy.  That said, I do think more of the burden of capital taxation falls on capital than labor, but plenty falls on labor nonetheless.  See the most recent comments from Summers, stronger arguments overall.

4. “The Seattle Sperm Bank categorizes its donors into three popular categories: “top athletes,” “physicians, dentists and medical residents,” and “musicians.””  Link here.

5. Excellent Scott Sumner post on an excellent John Cochrane post.

6. The Saudis and the Kurds.

The post Sunday assorted links appeared first on Marginal REVOLUTION.

*The Second World Wars*

Oct. 22nd, 2017 04:56 am
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Posted by Tyler Cowen

The subtitle is How the First Global Conflict Was Fought and Won, and the author is Victor Davis Hanson.  I loved this book, even though before I started I felt I didn’t want to read yet another tract on WWII.  Most of the focus is on the logistics and management side:

By 1944, the U.S. Navy was larger than the combined fleets of all the other major powers.

At the start of the War, the United States accounted for about 55-60 percent of world oil output.

The U.S. soldier was treated for psychiatric disorders at a rate ten times that of German troops.  The average hospital stay for an American soldier was 117 days and 36 percent were not returned to the front.  Supplies for a typical American soldier exceeded 80 pounds per day.

The German army killed about 1.5 GIs for every German soldier lost.

The highest American fatality rate was in the Pacific, at 4 percent, still a remarkably low rate for the war as a whole.  America did so well because of high gdp and remarkably efficient supply lines and equipment and air and naval support.

Poland alone lost more citizens than all of the Western European nations, Britain, and the U.S. combined.

WWII took place in a strange technological window when weapons had advanced much more rapidly than protective body armor.  That is one reason why casualties from the fighting were so high.  The war is also unusual for having had so many battles and fronts where the victor gave up more lives than the loser, including of course the war as a whole.

Hanson considers the American submarine offensive against Japan as perhaps the most “cost-efficient” offensive from the war.

“No navy in military history had started a war so all-powerful as the Japanese and ended it so utterly ruined and in such a brief period of time…”

Strongly recommended, a shoo-in for the top tier of the year’s best non-fiction list, the writing is gripping too.

Here is a HistoryNet review: “utterly original.”  Here is Matthew Continetti at NR: “Masterful.”

The post *The Second World Wars* appeared first on Marginal REVOLUTION.

Can We Stop Aging? Should We?

Oct. 21st, 2017 11:27 am
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Posted by Alex Tabarrok

The great Tim Urban of Wait but Why has a deep dive into Why Cryonics Makes Sense.

A key argument:

Here’s an interesting way to think about it: Imagine a patient arriving in an ambulance to Hospital A, a typical modern hospital. The patient’s heart stopped 15 minutes before the EMTs arrived and he is immediately pronounced dead at the hospital. What if, though, the doctors at Hospital A learned that Hospital B across the street had developed a radical new technology that could revive a patient anytime within 60 minutes after cardiac arrest with no long-term damage? What would the people at Hospital A do?

Of course, they would rush the patient across the street to Hospital B to save him. If Hospital B did save the patient, then by definition the patient wouldn’t actually have been dead in Hospital A, just pronounced deadbecause Hospital A viewed him as entirely and without exception doomed.

What cryonicists suggest is that in many cases where today a patient is pronounced dead, they’re not dead but rather doomed, and that there is a Hospital B that can save the day—but instead of being in a different place, it’s in a different time. It’s in the future.

Kurzgesagt and CGP Grey also have a new two part video series on why we should stop aging forever. The first one is below. The second is here.

Am I seeing a trend? I hope so. To quote CGP Grey:

Humans must discard the learned helplessness that the reaper and their own brains have imposed on them.

The post Can We Stop Aging? Should We? appeared first on Marginal REVOLUTION.

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Posted by Tyler Cowen

From John Cochrane:

That paragraph contains a classic economic fallacy, that of composition; the confusion of relative prices and the level of prices and wages overall. If labor markets get “tight,” companies finding it hard to find workers, then yes, one expects wages to rise. But one expects wages to rise relative to prices. You only tempt workers to move to your company by offering them wages that allow them to buy more. Similarly, if there is strong demand for a company’s products, its prices will rise. But those prices rise relative to other prices and to wages. Offering a company higher prices when its wages, costs, and competitor’s prices are all rising does nothing to get it to produce more.

So, in fact, standard economics makes no prediction at all about the relationship between inflation — the level of prices and wages overall; or (better) the value of money — and the tightness or slackness of product and labor markets! The fabled Phillips curve started as a purely empirical observation, with no theory.

To get there, you need some mechanism to fool people — for workers to see their wage rise, but not realize that other wages and prices are also rising; for companies to see their prices rise, but not realize that wages, costs, and competitors’ prices are also rising. You need some mechanism to convert a rise in all prices and wages to a false perception that everyone’s relative prices and wages are rising. There are lots of these mechanisms, and that’s what economic theory of the Phillips curve is all about. The point today: it is not nearly as obvious as newspaper accounts point out. And if central bankers are a bit befuddled by the utter disappearance of the Phillips curve — no discernible relationship, or actually now a relationship of the wrong sign, between inflation and unemployment, well, have a little mercy. Inflation is hard.

There is more at the link.

The post Do tight labor markets cause inflation? appeared first on Marginal REVOLUTION.

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Posted by Tyler Cowen

Eric Crampton makes many good points, here is one of them:

But that gets us to one of the risks: the intersection of Labour, Green and New Zealand First’s core beliefs is distrustful of markets and of foreigners. I can’t see how we get anywhere close to the proposed 100,000 houses built in any reasonable time without allowing foreign workers, materials, capital and expertise to help.

New Zealand’s Overseas Investment Regime already makes us the most restrictive in the OECD. Any land adjacent to a reserve must go through the screening regime, and it will be tough to ease that back under the current coalition. Heck, even New Zealand’s Fletcher Construction has to jump through Overseas Investment Act hurdles because it has foreign shareholders. New Zealand First has proposed cutting immigration numbers substantially, and Labour and the Greens have been very sympathetic to that view. The incoming government has also signaled an intention to re-negotiate trade agreements to allow banning non-residents from buying houses. If supply issues are appropriately addressed, the ban does no good and could backfire if it prevents foreign investors from building houses here to rent out.

Vernon Small offers a more pessimistic take.

The post The Kiwi Labour, Green, and New Zealand First coalition appeared first on Marginal REVOLUTION.

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In the vast sweep of history, even an empire can be forgotten. In this wide-ranging talk, Gus Casely-Hayford shares origin stories of Africa that are too often unwritten, lost, unshared. Travel to Great Zimbabwe, the ancient city whose mysterious origins and advanced architecture continue to confound archeologists. Or to the age of Mansa Musa, the ruler of the Mali Empire whose vast wealth built the legendary libraries of Timbuktu. And consider which other history lessons we might unwittingly overlook.

John Cochrane defends equity banking

Oct. 20th, 2017 02:04 pm
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Posted by Tyler Cowen

In part his blog post is a response to my recently published email, but it is also a more general presentation of the equity banking idea.  Here are his closing bits:

The equity of 100% equity financed banks would be incredibly safe. 1/10 the volatility of current banks. It would be an attractive asset. The private sector really does not have to hold any more risk or provide any more money to an equity financed banking system. We just slice the pizza differently. If issuing equity is hard, banks can just retain profits for a decade or so.

Or, better, our regulators could leave the banks alone and allow on on-ramp. Start a new “bank” with 50% or more equity? Sure, you’re exempt from all regulation.

And, in case you forgot, we live in the era of minuscule interest rates — negative in parts of the world; and sky high equity valuations. All the macroeconomic prognosticators are still bemoaning a “savings glut.” A scarcity of investment capital, needing some sort of fine pizza slicing to make sure just the right person gets the mushroom and the right person gets the pepperoni does not seem the key to growth right now.

He chose the excellent title “Tyler: Equity financed banking is possible!”  Do read the whole thing, it is a very good and useful post.

I would add a few points in response.  First, I think equity banking would have to be very tightly regulated to remain as such, more than the status quo.  There always would be incentives to take on more off-balance sheet risk for higher returns.  Second, a much bigger commercial credit sector would have its own maturity mismatch problems.  It might be better than the status quo, but it too likely would end up with a lot of bad regulation, or maybe it would become a no-less-dangerous form of shadow banking.  In general, I don’t think our current form of government can precommit to “no regulation.”  Third, money market funds work pretty hard to maintain fixed nominal value for their depositors.  Admittedly this is a theoretical puzzle, but that we don’t understand the prevalence of debt at various levels (and that prevalence is all the stronger outside the U.S.) does not lead me to think we can alter it as we might wish.  That the theory of capital structure is so weak I do not take to mean that capital structure is so remarkably flexible.  Finally, I don’t think the savings glut is all that relevant for SMEs, and traditional banks still seem to be more efficient at matching borrowing and lending at the local level.  Again, this is a phenomenon we do not understand very well (Fama 1985), but I am not so confident we can undo it.  I also don’t think the savings glut will last much longer, given Asian demographics.

That all said, I would gladly experiment more with equity banking and indeed have written as such in the past.  I am less sure it will do away with our current regulatory dilemmas.  I don’t think it is easy to get around having a part of the economy which is both systemically risky, and also debt-intertangled, as the evolution of shadow banking over the last fifteen years seems to indicate.

The post John Cochrane defends equity banking appeared first on Marginal REVOLUTION.

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Harmoniously weaving together the art of dance and the science of mechanical engineering, Huang Yi performs a man-machine dance duet with KUKA -- a robot he conceptualized and programmed -- set to stirring cello by Joshua Roman.
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Posted by Tyler Cowen

That is the title of my latest Bloomberg column, here is one excerpt:

Now enter the Fed, which I think of as a tool of Congress and the president. It gives Congress a means of promoting economic growth and stability (one hopes), as well as a path for deflecting the blame if tough decisions must be made. Congress insists that the Fed is “independent,” precisely for this reason. But if voters hated what the Fed was doing, Congress could rather rapidly hold hearings and exert a good deal of influence. Over time there is a delicate balancing act, where the Fed is reluctant to show it is kowtowing to Congress, so it very subtlety monitors its popularity so it doesn’t have to explicitly do so.

If we imposed a monetary rule on the Fed, even a theoretically optimal rule, it would stop the Fed from playing this political game. Many monetary rules call for higher rates of price inflation if the economy starts to enter a downturn. That’s often the right economic prescription, but voters hate high inflation. The Fed would probably lose its political capital if it had to follow through on the rule, and monetary policy would end up politicized for a long time.

Central bank quasi-independence is a quite a fragile institution, and it is maintained only by allowing central banks to juggle lots of balls at once. If you make a rule too tough, even a good rule, sometimes what you get is a rule that snaps and breaks.

Do read the whole thing.

The post “The Only Fed Rule Is That There Are No Fed Rules” appeared first on Marginal REVOLUTION.

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Posted by Tyler Cowen

That is the new Peter Leeson book, and it is just out.  Here is the Amazon summary:

This rollicking tour through a museum of the world’s weirdest practices is guaranteed to make you say, “WTF?!” Did you know that “preowned” wives were sold at auction in nineteenth-century England? That today, in Liberia, accused criminals sometimes drink poison to determine their fate? How about the fact that, for 250 years, Italy criminally prosecuted cockroaches and crickets? Do you wonder why? Then this tour is just for you!

Here are the book’s rather spectacular blurbs.  Here is a short Peter piece on medieval ordeals.  Here is a Reddit thread on whether medieval ordeals actually were an effective test of guilt.  And he has this piece on superstition and Friday the 13th in Newsweek.  I would like to see a media outlet excerpt his piece on the rationality of gypsy culture.

I would say that Peter has written a very effective book within the Beckerian tradition, namely trying to explain economic phenomena in terms of a neoclassical rational actor model.  Nonetheless I am much less of a Beckerian than Peter is, at least for the socially-oriented issues he is considering.  Here is a simple typology of approaches:

1. Beckerians and the rational actor model.  I slot Peter in here, along with many Chicago School economists, Marvin Harris, and much of public choice economics.  An explanation shows how a social outcome stems from the interaction of means-end maximizing individuals, translated into some aggregate result.

2. Behavioral economics.  By now this is old news, but these researchers find what I consider to be relatively small deviations from the rational actor model.  This is usually done by measurement, rather than through more complete models.

3. Cultural economics, anthropologists, and many sociologists.  Peer effects are paramount, and Frenchmen see the world differently than do Americans, not to mention Bantus or Pygmies.  This is due to a social contagion of perception that does not boil down to rationality in the sense that economists understand it (you can build a model in which social mimicry at young ages is rational, but that model won’t generate much insight into the particular phenomena we are trying to explain, nor does that model pick up the mimicry mechanism very well).  Historical study plus thick description plus economic rationality at various margins (but margins only) plus some statistics is the way to go.  Mostly we’re trying to understand how and why other groups of people see the world in fundamentally different terms.

The economists who can best grasp other points of view thus are the masters of explaining macro-phenomena (by which I mean something quite distinct from traditional macroeconomics).

I am much closer to #3 than are most economists.  Furthermore, I view economists as patting themselves excessively on the back for #2, when #3 is far more important.  Peter has written a very good book mostly in the tradition of #1, though due to his Austrian background with periodic forays into #3.  I once wrote to Peter: “Gypsy culture rational?  How about Episcopalian investment bankers in Connecticut being rational?”  Probably neither are.

The post *An Economic Tour of the Weird: WTF?!* appeared first on Marginal REVOLUTION.

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With what3words, Chris Sheldrick and his team have divided the entire planet into three-meter squares and assigned each a unique, three-word identifier, like famous.splice.writers or blocks.evenly.breed, giving a precise address to the billions of people worldwide who don't have one. In this quick talk about a big idea, Sheldrick explains the economic and political implications of giving everyone an accurate address -- from building infrastructure to sending aid to disaster zones to delivering hot pizza.
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Posted by Tyler Cowen

A Slovenian artist breastfed her dogs and fertilized one of her eggs with a dog cell as part of an award-winning three-month art project. She also produced a video documenting the creative process behind the bizarre venture.

Maja Smrekar lived in seclusion with her dogs as part of the lengthy artistic experiment, which was titled “K-9_topology.”

Here is the full story, with photo, via Torsten K.

The post The topology culture that is Slovenia (who’s complacent?) appeared first on Marginal REVOLUTION.

*The Fate of Rome*

Oct. 19th, 2017 03:21 pm
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Posted by Tyler Cowen

That is the new and very important book by Kyle Harper, with the subtitle Climate, Disease, & the End of an Empire.  I am just reading through this now, but it appears to be an significant revision of our views on the decline of Rome.  p.21 offers a capsule summary, which I will summarize in turn:

1. During the reign of Marcus Aurelius, a pandemic “interrupted the economic and demographic expansion” of the empire.

2. In the middle of the third century, a mix of drought, pestilence, and political challenge “led to the sudden disintegration of the empire.”  The empire however was willfully rebuilt, with a new emperor, new system of government, and in due time a new religion.

3. The coherence of this new empire was broken in the late fourth and early fifth centuries.  “The entire weight of the Eurasian steppe seemed to lean, in new and unsustainable ways, against the edifice of Roman power…and…the western half of the empire buckled.”

4. In the east there was a resurgent Roman Empire, but this was “violently halted by one of the worst environmental catastrophes in recorded history — the double blow of bubonic plague and a little ice age.”

Here is a key passage from the book:

The centuries of later Roman history might be considered the age of pandemic disease.  Three times the empire was rocked by mortality events with stunning geographical reach.  In AD 165 an event known as the Antonine Plague, probably caused by smallpox, erupted.  In AD 249, an uncertain pathogen swept the territories of Roman rule.  And in AD 541, the first great pandemic of Yersinia pestis, the agent that causes bubonic plague, arrived and lingered for over two hundreds years.  the magnitude of these biological catastrophes is almost incomprehensible.

Here is the book on Amazon.  Here is Kyle Harper on Twitter.  Here is Harper on scholar.google.com; he is also Provost at the University of Oklahoma.

I do not feel I can assess the veracity of this thesis, but it does seem to be intelligently and reasonably argued.

The post *The Fate of Rome* appeared first on Marginal REVOLUTION.

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With her gorgeous, haunting photographs, artist Uldus Bakhtiozina documents dreams, working with daily life as she imagines it could be. She creates everything in her work by hand -- from costumes to stages -- without digital manipulation, bringing us images from the land of escapism, where anyone can become something else.


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