Monday, February 11, 2019

Wealth: Underrated or Overrated ...

Billionaires and MEdia Dragons are good for Democracy ....

Consumer anxiety reaches its highest level in over 3 years

Taxpayers should not be subsidising lifestyle of wealthy retirees

It’s got nasty': NSW election battle over health and hospitals heats up

Minister welcomes review of MPs' special fine hotline

NSW Transport Minister Andrew Constance says he would support a review of a hotline that allows ministers to intervene in fines given to their constituents.

'Barren and bleak building site': Is North Sydney at risk of overdevelopment?
Genia McCaffery does not mince words when describing North Sydney. “Over
the last six years, the place has become a barren and bleak building site and, sadly, I've lost my local

It’s got nasty': NSW election battle over health and hospitals heats up '

In any ordinary world, one might expect news of a new hospital to be greeted enthusiastically. But nothing is ever so straightforward in health.

Ryan who? The former PE teacher who could be the next NSW treasurer

You may not have heard of him, but Ryan Park could, in less than 45 days’ time, be leading a state economy which ranks among the top 10 in Asia.

Global drug trafficking operation run out of Villawood detention centre, phone taps reveal - ABC News (Australian Broadcasting Corporation)

Daniel Shoag and Stan Veuger say yes, but I am not so convinced.

 It turns out that metrics of land use restrictions are correlated with restaurant quality, across cities.  To cut to the chase, Los Angeles ranks number one on this index, and I can agree with that assessment in terms of food quality and also diversity.  (Other good food cities, such as Miami, also rank high on the index.)  Yet for the metropolitan area near L.A., food is generally best where the land use restrictions are least binding.  Beverly Hills and Santa Monica have some decent fancy restaurants, but the real gems are to be found elsewhere, in fringes such as northeast Hollywood, Silverlake (gentrifying a bit too much these days, however), north Orange County, Monterey Park, and so on.  Pasadena has hardly anywhere excellent to eat.
I would suggest an alternative channel of influence: urban areas with high inequality have both better food (see An Economist Gets Lunch, but basically imagine the wealthier people generating demand and the poorer people supplying cheap labor) and more building restrictions.  The wealthier people decide to do something to keep the poorer people out of their neighborhoods.
I hate to say “correlation does not prove causation,” but…correlation does not prove causation.

Labor campaign targets marginal Liberals who brought down Turnbull

Labor has fired the first shot in a new campaign that targets Liberal MPs who signed a petition that helped bring down Malcolm Turnbull, urging voters to turn against those who backed last year’s leadership spill.

*Women in economics, from Journal of Economic Perspectivesherehere, and here
 “Today they’re priced at -$.05!
California Tortilla (@caltort) Tweeted:
BRR, IT’S COLD! This Thursday, warm up by paying the #windchill temperature for chips and #queso 🧀 For example, if it’s 8 degrees, the price will be 8 cents for the day. And if it’s -12 degrees, we will pay you 12 cents when ordering. Stay tuned for the price tomorrow morning!

Labor announces plan for 500,000 households to get rooftop solar

The program could save families up to $1000 a year on electricity bills

Despite the unnecessary duplication (FATCA etc), I’m actually in favor of requiring banks to disclose how much income US taxpayers earn on ther accounts in the US and abroad. Unfortunately, if you are going to have an income tax system, you can’t simply rely on everyone voluntarily reporting. But, this also raises serious privacy concerns that need to be balanced. The wealth tax on all or most all assets would significantly alter the current balance between disclosure and privacy. As noted in the article, *everything* would need to be disclosed to the IRS *every year* much like an annual estate tax return. Expect substantial additional reporting requirements on all assets. Think that won’t apply to you? How else are they going to know you don’t have $50 million hidden somewhere? How are *taxpayers* going to know they don’t meet that (or some other) threshold ? Trust me, lawyers and accountants, (legitimately) worrying about their own potential liability, will insist that far more people undergo these audits internally just to make sure they are not above the limit.
These privacy issues also have potentially serious political implications. I suppose Bill and Hillary and Barrack and Michelle (add your own list) would be subject to these annual wealth tax returns. Annual audit by the IRS on everything? Do they really want the Trump administration (or some other) having access to all that? This sounds like a potential special prosecutor on steroids and one that is not always going to be politically neutral. I see the potential here for a lot of political abuse and not just from one side or the other.

That is from Vivian Darkbloom on MR and in the LOC, with other good points in the comment too

Sam asks me:
I was struck by something that Peter Thiel has talked a bit about in recent months, namely that capital is flowing ‘uphill’ from China to the U.S., which is not what the neoclassical model would predict. I’ve read a few of the general objections to this “Lucas Paradox” (e.g. differences in human capital, credit risks etc.), but would love to know what your take on this phenomenon is.
I would cite a few factors:
1. China is a high-savings country with high political risk.  In general savings don’t have that many safe outlets, noting the third largest government debt market in the world is that of Italy.  So of course much of this money flows into the United States.  And China is hardly the only high-savings emerging economy.
2. China makes it costly or impossible for many kinds of American firms and individuals to invest directly in China, this now being a familiar story.  The Chinese stock market also is limited and unrepresentative of the Chinese economy as a whole.
3. American capital will not flow to Russia the way British capital once sopped up opportunities in Argentina and elsewhere in the late 19th and early 20th centuries.  The end of gunboat diplomacy is one but not the only reason for this.
4. State-owned industry is a bigger factor today than in earlier times.  For instance, if Aramco is privatized, plenty of private Western capital will invest in the company.  But so far it is not.
5. Savings rates are often especially high during times of rapid income growth, because preferences have not yet caught up with income (an underrated mechanism, which perhaps someday will get its own blog post).  Emerging economies in much earlier times did not have such rapid growth, and therefore they did not have comparable huge savings surpluses to dispose of.
6. The United States has issued a lot of debt, whereas the earlier Great Britain ran a balanced budget at least intertemporally.
7. America has accumulated enough wealth so that flows of household savings can be relatively low.  Plus we are irresponsible — so good at marketing and spending! — and thus we do not save enough either.
8. If you counted holdings of American dollars, as a reserve currency, as “America exporting its rule of law,” the flow of funds would look less strange.

Which other reasons?

Back in 1990, 12 high-income countries had wealth taxes. By 2017, that had dropped to four: France, Norway, Spain, and Switzerland (In 2018, France changed its wealth tax so that it applied only to real estate, not to financial assets.)  The OECD describes the reasons why other countries have been dropping wealth taxes, along with providing a balanced pro-and-con of the arguments over wealth taxes, in its report The Role and Design of Net Wealth Taxes in the OECD (April 2018).
For the OECD, the bottom line is that it is reasonable for policy-makers to be concerned about the rising inequality of wealth and large concentrations of wealth But it also points out that if a country has reasonable methods of taxing capital gains, inheritances, intergenerational gifts, and property, a combination of these approaches are typically preferable to a wealth tax.  The report notes: “Overall … from both an efficiency and an equity perspective, there are limited arguments for having a net wealth tax on top of well-designed capital income taxes –including taxes on capital gains – and inheritance taxes, but that there are arguments for having a net wealth tax as an (imperfect) substitute for these taxes.”
Here, I want to use the OECD report to dig a little deeper into what wealth taxes mean, and some of the practical problems they present.
The most prominent proposals for a US wealth tax would apply only to those with extreme wealth, like those with more than $50 million in wealth.  However, European countries typically imposed wealth taxes at much lower levels of wealth…
It’s interesting, then, that in these European countries the wealth tax generally accounted for only a small amount of government revenue. The OECD writes: “In 2016, tax revenues from individual net wealth taxes ranged from 0.2% of GDP in Spain to 1.0% of GDP in Switzerland. As a share of total tax revenues, they ranged from 0.5% in France to 3.7% in Switzerland … Switzerland has always stood out as an exception, with tax revenues from individual net wealth taxes which have been consistently higher than in other countries …” However, Switzerland apparently has no property tax, and instead uses the wealth tax as a substitute.
The fact that wealth taxes collect relative little is part of the reason that a number of countries decided that they weren’t worth the bother. In addition, it suggests that a US wealth tax which doesn’t kick in until $50 million in wealth or more will not raise meaningfully large amounts of revenue.
There are many more excellent points at the link.  Here is another:
A wealth tax will tend to encourage borrowing. Total wealth is equal to the value of assets minus the value of debts. Thus, one way to avoid a wealth tax is to borrow a lot of money, in ways that may or may not be socially beneficial.
Tim concludes:
To me, many of the endorsements of a wealth tax feels more like expressions of righteous exasperation than like serious and considered policy proposals.

Recommended.  If you would like another point of view, Saez and Zucman respond to some criticisms