Wednesday, September 26, 2012

The Mantra

  Except for my very first posting, I have avoided political subjects in this blog, a result of my newfound apolitical stance.  However, I am at least temporarily re-entering the political arena to attack what I call the Mantra: the conservative incantation that high taxes, especially in the upper brackets, reduce GDP growth.

  In fact, massive data indicate that the effect is in the other direction: high tax rates, at least in the top brackets, correlate with increased GDP growth.  That may seem counter-intuitive, so let me present some of the data.  Table I shows the top marginal federal tax rate on ordinary income for the one hundred years since we have had an income tax; I use the top rate as a proxy for all higher brackets since they move up and down together and because the topmost rate is the one most often challenged by the Mantra.


Table I: Top Marginal Federal Tax Rates by Year
[Source: Tax Policy Center: Urban Institute and Brookings Institution.
Highlighting and columns showing presidencies from 1947 on are added.]

  The highlighting in Table I shows the very few periods, totaling 16 years, when the top rate was less than the 35% rate of the past ten years: the four initial years of the income tax before our entry into World War I (7-15%); the end of the Roaring Twenties (24-25%; we all know where that led!); the last year of the Reagan presidency (28%); and all four years of the Bush-I presidency (28-31%).  For another 74 years, the top rate exceeded that of the last ten years, in most of those years being 50% or higher.

  Next, Chart I shows the ten-year trailing average of GDP growth. The curve's leftmost point is the average annual GDP growth from 1948-57; its rightmost point is the average from 2002-11.  For the moment disregarding the year-to-year fluctuations and looking only for broad trends, what is remarkable about this chart is that the early years show GDP growths distinctly higher than the later years.  That is exactly the reverse of what the Mantra advertises, because top rates before 1982 were a high 70-91%, and those after 1982 were a much lower 28-50%.  Especially telling, I think, is the plummeting of GDP growth since the Bush II tax cuts of ten years ago. 


Chart I: Ten-Year Trailing-Average GDP Growth
[Source: Key Trends in Globalisation]

  Finally, Chart II gives more detail for recent years, 1986 to present.  Each point on the curve gives the five-year forward average of GDP growth rather than a ten-year trailing average.  The chart additionally notes the years of tax increases and decreases during the period.  In line with our previous observations, GDP growth more often than not increased after an increase in taxes and decreased after a decrease in taxes, not the reverse.


Chart II:  Five-Year Forward-Average GDP Growth
[Source: New York Times, September 15, 2012]

  What's going on?  In an effort to drill down more finely into the data in Table I and Chart I, I constructed a scatter plot from them.  For each year starting with 1957, I computed the ten-year trailing average of tax rates in Table I, and paired it with the same year's ten-year trailing average of annual GDP growth from Chart I, each pair then defining a point in Chart III. 

Chart III:  Ten-Year Trailing Averages: GDP Growth vs. Top Tax Rates

  Chart III corroborates the qualitative conclusions I have noted.  By scanning the array of points, which generally sweep upward and to the right, you can easily see how higher top tax rates and higher GDP growth rates tend to go along with each other.  The trend line shown, which best fits the data points, captures this effect.  (For those with a statistical bent, the correlation coefficient of the data, which measures the degree of their clustering around the line, is +0.50; if it had been +1.0, all the points would have lain exactly on a straight line with a positive slope.)

  Although the slope of the best-fit line is modest (showing on average only a 0.1 percentage-point increment of GDP growth rate for each 6.5 percentage-point increment in top tax rate), some pairs of points  tell a different story.  For example, the best decade's average GDP growth rate exceeded the worst decade's by a whopping 3.25 percentage points, even though the average top tax rate during the former decade was 2.3 times larger than that during the latter.  No pair of points shows anything like that disparity in the opposite direction. 

  High taxes on ordinary income are not the only ones denounced by the Mantra.  There are also capital gains (CG) taxes, which are now lower than at any time except 1912-15 and 1922-33.  A similar analysis for them yields comparable results, shown in Chart IV.  The trend line has a slightly steeper slope, showing on average a 0.25 percentage-point increment in GDP growth rate for each 6.5 percentage-point increment in the top CG tax rate, but the data are more scattered around the line, with a weaker correlation coefficient of only +0.26.  There is much the same large disparity between the best and worst decades' data points.

Chart IV:  Ten-Year Trailing Averages: GDP Growth vs. Top CG Tax Rates

  By whatever measure, then, analysis discredits the Mantra.  GDP growth rates tend to go up with increasing top tax rates, rather than the other way around as the Mantra contends.

  Of course, I've only established a positive correlation, not causation; other factors affecting GDP growth may explain the correlation between it and high tax rates.  (For example, hot weather may cause ice cream to melt and lawns to die, and analysis would therefore show a strong correlation between the two effects; but no one would say that dying lawns cause ice cream to melt or vice versa.)  However, I strongly argue that there is a causal link at work here, especially nowadays. 

  In my estimation, as low top tax rates help siphon ever more of the nation's wealth to the wealthiest, that excess wealth hasn't been chiefly deployed for GDP-enhancing activities like building businesses, as conservatives claim.  Rather, I think much of it has been diverted to personal ends that do little to enhance and sometimes destroy GDP growth.  I call them the three Bs.

  The least pernicious of the Bs are the baubles, the accoutrements of wealth, like übercars (mostly made abroad, barely affecting U.S. GDP), lavish vacations (again, largely abroad), masterworks of art and rare antiques (minimal effect on GDP), and extravagant mansions (mildly stimulative).  Far worse are the bundles of assets sequestered in offshore tax havens, which have no effect on the U.S. economy.  Worst are the bubbles that excess wealth stokes when it rashly chases profits by risky investing—such fads as mortgage-backed securities and other derivatives—massively destroying GDP when the bubbles burst, as in 2008.

  On the other hand, when in the past higher top tax rates have restrained the diversion of excess capital to the wealthiest, that capital has usually been deployed much more productively on infrastructure and other core governmental activities.  A key example is the construction of the interstate highway system, started under President Eisenhower in 1956 and continued for two decades thereafter with tax money received when top ordinary-income tax rates were 70-91% and CG rates were 25-35%.  It was an enormously stimulative project, no doubt contributing greatly to the bulge in the ten-year trailing average GDP growth rates from 1966-75 shown in Chart I.  When tax rates went down to today's levels, starving the government of needed revenue, such infrastructure projects as well as core government activities like education began to suffer, to the detriment of GDP growth. 

  Government is not the enemy depicted by conservatives; it is an integral and vital part of a healthy economy.  Sufficient taxation is required for it to accomplish its necessary role, which in its fulfillment also increases GDP, to say nothing of helping balance the budget.

  To paraphrase a certain Scotswoman:  Out damn'd Mantra! out I say! 

Wednesday, September 19, 2012

Two Clubs

  I belong to two clubs, each of which meets every couple of months.  One is a book club, whose membership is exclusively male.  The other is "The Girls' Club," whose membership consists only of women and me; for its purposes, I have been made an honorary woman.

  The book club meets over dinner.  It reads and discusses mostly non-fiction: science, history, biography, economics, current events, politics and such.  Our discussions are intense, notional, often disputatious, and thoroughly enjoyable.  Rarely discussed are our children or wives or our mutual friends.

  The Girls' Club meets at lunch and sometimes for dinner and theater.  My membership in it cannot possibly inform me of what goes on at women-only groups in general, since my presence necessarily changes its very nature.  However, the Girls' Club is distinctly unlike my book club.  Although we do discuss current events, politics and books we have read, most of our conversation is about our families, other people we know, and what is happening to them.  Pictures of children and grandchildren frequently circulate. The talk is mellow, feeling-centric, never disputatious, and as thoroughly enjoyable as the book club's.

  The sources of such differences between the sexes have been analyzed so much that anything I might have to say is bound to be both trite and dated by my upbringing in the first half of the twentieth century.  Nature or nurture?   Genetics, hormones or culture?  Of course, it is some combination.  Whatever the sources, though, my experiences with the two clubs over the past decade have helped focus my thoughts about their consequences.

  I have long thought that "the fairer sex" (in both senses of the word "fair") is also the better one.  I am now completely convinced of that.  The women in the Girls' Club and others I know temper abstractions with feelings, rarely suppressing human factors in their thinking.  They are not at all embarrassed, as men usually are, in expressing their emotions.  They are more accepting than men of the fallibility of others.  They are less prone than men to one-upmanship.  They are less likely to shoot from the hip.  In a word, I look on my female friends as more menschlich than men, in the word's full sense of humanity, humaneness and civilized behavior. 

  Like many others, I cannot help wonder what the world would be like if it were run by women.  Would their greater Menschlichkeit lead to a gentler result?  Would the fact that they bear and nurture our young lead to a fuller understanding of peoples' plight in coping with the world?  I would hope so, but I am not sure.  So far, women who have attained leadership positions seem to have dosed on testosterone in their fight to succeed in a male-dominated world.  Prime examples are Margaret Thatcher and Angela Merkel, who—in beating men at their own game—seem to have adopted male attitudes and behavior, becoming less menschlich.  Even Hillary Clinton, who I  think has been a superb secretary of state, must feel the same pressure when going mano-a-mano with her male counterparts in other countries.

  We may have to wait until a distinctly female worldview attains a status equal to men's before it will be able to fully express itself in political and corporate life.  At that point, perhaps the urge to war and war itself will be less frequent.   Perhaps civic life will be less contentious, less filled with aggression and crime.  Perhaps corporate life will be less of a macho rat race.  Perhaps the nurturing of all segments of society will replace devil-take-the-hindmost. 

  A book coincidentally published just while I was writing this posting is less optimistic.  In The End of Men: And the Rise of Women, author Hanna Rosin says, "A more female-dominated society does not necessarily translate into a soft feminine utopia.  Women are becoming more aggressive and even violent in ways we once thought were exclusively reserved for men.  This drive shows up in a new breed of female murderers, and also in a rising class of young female 'killers' on Wall Street.  Whether the shift can be attributed to women now being socialized differently, or whether it's simply an artifact of our having misunderstood how women are 'hardwired' in the first place, is at this point unanswerable, and makes no difference.  Difficult as it is to conceive, the very rigid story we believed about [the stereotypical attributes and roles of the sexes] is obviously no longer true.  There is no 'natural' order, only the way things are."

  I hope Rosin is wrong in her assessment.  Even she admits that many women now at the top of corporations use a horizontal, collaborative management style—coaching a team rather than ordering subordinates—and are less prone to the testosterone-fueled excessive risk-taking of their male counterparts.  To return to my previous point, I suspect that not enough time has passed.  Maybe the "male characteristics" often displayed by even the youngest women climbing the ladder now—the ones least bridled by the old ways—derive from their still having to compete in a male-dominated world, as the Thatchers and Merkels did a generation or two ago.  Maybe in another generation or two, when it hopefully will not be so difficult to climb the ladder while carrying along a feminine worldview, we will have a world whose ethos is completely different, and better.

  Whatever the final outcome, for now I will be content with savoring the very different male and female worldviews in my two clubs—whose members are, as one says, "of a certain age."  

Wednesday, September 12, 2012

Chance

  The random deaths of two friends within the past half year has again shown me how much we are in the thrall of Chaos, as if the horrors in daily newspapers weren't enough to convince me.  One friend was killed by a motorist who ran through a red light.  The other was slain by a psychotic with whom he had no connection.  It is one thing to read of Chaos in some distant city or land, another to be shocked by its making off with friends.

  I suppose I should not have been so shocked, for I believe that Chance—all the random and unpredictable things that happen to us—is a major determinant of our lives.  In addition to its downside, Chaos, it has the upside of Fortune.  It's as if we lived in a casino, our fates determined by random turns of cards, wheels and dice, further muddled by the vagaries of other players.  We try to play well in this casino: to recognize and seize an opportunity when Fortune smiles and to diminish Chaos by using caution.  Even for the best players, though, there is a sufficient abundance of the random and unpredictable to seize control.

  My own response to the arbitrariness of Chance has become a curious combination of resignation and hope.  It is reflected by some previous writings in this blog, which I think blend into a more or less coherent philosophy of life. 

  I have become reconciled to Chance's sovereignty [1], which I see stemming from two sources.  On the natural level, it starts with the uncertainty inherent in quantum physics [2] and ascends to such indeterminate phenomena as DNA combination at conception, genomic mutations [3], the weather and earthquakes..  The odds here are pretty much fixed by nature.  On the man-made level, Chance arises from the erratic interactions among all six billion of us: the up- and downsides of competition and markets, the only-downsides of criminal acts and war, and the like.  Here the odds are more malleable because they depend on how we ourselves act—we use our analytical abilities and intuition [4], exercise free will [5] and engage in concerted societal action [6].  I have moments of pure hope, for instance when I see signs of fresh life bubbling up in a new generation, with all the promise of a new start that entails [7].  I perceive hope as the essential ingredient in survival [8] in the face of Chaos.

  At my age, Chaos is more on my mind than Fortune, since the latter has probably blessed me with all that I am likely to get in an already fortunate life.  In an attempt to evade the angst of Chaos, I have lately become less and less an active participant, more and more a removed observer, above all seeking equanimity [9].  It is as if I have at long last tried to withdraw from the casino.

  Voltaire had scathing words for those who reach this state, calling them sapless with ennui.  He assuredly was not one of them, living to a ripe 84—two years older than I am now—and remaining vital and passionately engaged, despite threats of imprisonment, until dying not much before the French Revolution that he helped precipitate. 

  Voltaire undeniably understood Chaos.  He savaged those like his fictional character Dr. Pangloss (modeled after Leibniz), who believe that Chaos doesn't exist in this "best of all possible worlds" and contend that each thing is made for a purpose and therefore necessarily for the best purpose, no randomness involved.  In representing the actual world in Candide, Voltaire has his eponymous hero suffer endless natural calamities—earthquake, fire, shipwreck, etc.—and succumb to multiple acts of human cruelty through the misfortune of being at the wrong places at the wrong times.  Meanwhile, in one scene, he drolly has Pangloss dissuade Candide from trying to save a friend who is drowning in the Lisbon harbor by "proving" that the harbor was formed expressly for that friend to drown in. 

  No, Voltaire didn't Pangloss over natural and man-made Chaos with metaphysical claptrap.  Accepting it, he resolved to live in and improve the real world.  If that was good enough for Voltaire, even as he aged, why not for me?  Instead of surrendering to ennui, losing my sap, shouldn't I still defy Chaos as he did and stay involved?  Excellent questions to ask myself.

  My detachment, however, runs very deep.  For example, take politics.  Man-made Chaos can flow from it, like Vietnam and Iraq.  I used to participate in it more heavily than now, hoping to help suppress such Chaos.  But I can no longer abide the Chaos of the political arena itself—its cacophony, destructiveness and ineffectiveness—so have largely disengaged myself.  As for natural Chaos, one is still more impotent to control it, so "che sarà, sarà" seems appropriate for it too.  I therefore disentangle myself from what Chaos I can, specifically when my ability to control it is minimal to nil.

  But wait before you denounce my being sapless, for I haven't sunk into callousness.  I now focus on small domains that I believe I can influence.  I provide scholarships to a few talented youngsters—fresh life bubbling up—who could not otherwise afford a first-rate education, hoping to help them take advantage of Fortune and minimize Chaos in their lives.  I steer clear of backing party-hack organizations, whose true agenda is obscure to me, instead selecting for support a scattering of political candidates across the country who seem to be both sincere and of my own mind.  I give to charities that are small enough for my contribution to make a difference, especially those that might reduce the effects of Chaos on the unfortunate. 

  In a word, if I have little power to manipulate the full thrust of Chance's torrent, I might be able to help channel some of its isolated rivulets.  That's an expression of resignation, tinged with hope, by a jaded would-be retiree from the casino.

Wednesday, September 5, 2012

Fame à la Woody Allen

  Each August my elder granddaughter, who lives in London, comes to visit me—one of my life's blessings.  We're both aficionados of Woody Allen, so for the past two Augusts we've had the pleasure of going together to see a new film by him: "Midnight in Paris" in 2011 and "To Rome With Love" this year.  Each is a fine contribution to Allen's oeuvre. (How amazing that he has written and directed more than forty films in as many years!)  Most feel that Paris is better, however, counting Rome as merely an entertaining trifle.  So did I at first, but now I've changed my mind.  Rome has stuck in my mind longer, and I keep on seeing more in it, perhaps more than is really there. 

  Both movies are about nostalgia, a specialty of Allen's.  In Paris, the nostalgia is Allen's hallmark longing for an era that peaked in 1920s Paris, even before he was born, and was embodied in the film in such characters as Cole Porter, Ernest Hemingway and F. Scott Fitzgerald.  In Rome, it is "Ozymandias melancholia," a theme announced early by one of the characters (John)—a meditation on fame gorgeously set in that Eternal City of wondrous Ozymandias-like ruins.  The philosophical nature of that meditation, even (or especially) as set off against Allen's usual zaniness, is what on reflection made me revise my initial reaction. 

  You may not want to read the following comments if you've not seen the movie and don't like spoilers.

  In Rome, Allen plays a just-retired, not-so-successful opera impresario (Jerry), who is depressed about his recent retirement, with the eventual death it foretells.  (Fear of death is a constant theme of Allen's.  One cannot help thinking of his quip that he doesn't seek immortality through his works, only by not dying.)  Jerry's daughter is engaged to an Italian youth, whose father (Giancarlo) is, appropriately, a mortician.  On visiting his daughter's future in-laws with his wife, Jerry discovers that Giancarlo has a superb operatic voice, which—it turns out—only reaches its fullness in the shower.  The wheels start turning in Jerry's mind, and they result in his madcap production of Pagliacci, with Giancarlo singing the lead role of Canio whilst in a shower.  (Significant, I think, that Allen—the professional clown—should choose Pagliacci.  Certainly, he must often have suffered the angst of Canio's most famous aria "Vesti la giubba": no matter what anguish the clown may suffer, it must be turned into jest.)

  That is just one of four subplots.  In another, an ordinary clerk (Leopoldo) suddenly and for no reason becomes a darling of the paparazzi, achieving meteoric fame.  To his amazement and exasperation, they pursue him for a brief season, demanding of him such minutiae as whether he wears briefs or boxer shorts and shaves before or after breakfast. Just as suddenly, the paparazzi desert Leopoldo for another unknown.  (This subplot is a delightful putdown of the celebrity media, which must plague Allen with their inanity.) 

  A third subplot has a fledgling American architect (Jack) living in Rome with his girlfriend.  He dreams of designing magnificent buildings, but is being drawn into a potentially destructive affair with his girlfriend's best friend, a bit-part actress.  John, the character visiting Rome in the throes of Ozymandias melancholia, is reliving his earlier days there when he too was an aspiring young architect with dreams of pathmaking designs; he apparently then had an affair that was destructive, which may have led to his selling out to achieve fame by designing only shopping malls.  John becomes Jack's Jiminy Cricket, materializing at times to warn Jack of the perils he faces.

  The final subplot involves a country bumpkin (Antonio), who is in Rome to meet  his rich uncles, into whose firm he is being recruited.  Through sexual misadventures separately involving him and his wife, his chances are undermined, but bring the fame he seeks into a new light.

  What is the thread connecting the four subplots?  Of course, as limned by the Ozymandias theme, it is the transience, randomness and futility of fame.  Each character reacts differently to it.  Jerry yearns for another shot at the prize.  His protégé Giancarlo at first wanted none of it, is momentarily seduced, then feels he has achieved all of it that he needs when he is hailed as a new Caruso for his Palliacci performance (while Jerry is panned as an imbecile for using the shower device).  Leopoldo is at first discombobulated by prominence, misses it when it is gone, then rejoices in returning to his former life as a drudging paterfamilias.  Jack, having almost jettisoned his chance at his dream by his seductress, is saved by her tossing him over when an acting part she craves is offered her—her own chance at fame.  Antonio realizes that he doesn't want any part of the big city, just to return to the country with his wife to raise a family.

  Elusive, seductive, disconcerting, destructive, sought after, basked in, run from, ephemeral—those are the multiple facets of fame's diamond explored by the movie.  Allen gets us to laugh at all of them, yet unjudgmentally shows us the humanity in each.  In an aside, through the mouth of one of the characters, Allen adds his own perception that, on the whole, being a celebrity is better than not being one, another theme of his throughout his career.   

  A character whom I take to be a personification of the Rome appears in just the opening and closing scenes, saying in both that he sees everything and everyone as they make their way through life, as Rome has done throughout the millennia.  The Eternal City reminds us that we all must eventually say, with Canio in Pagliacci, "La commedia è finita"—the farce is over.