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Archive for October, 2011

Obama’s Tax Proposals

Posted by Eliot Weinstein on October 30, 2011

President Obama has been touring the country to promote his “American Jobs Act“, along with a package of tax increases designed to pay for that jobs bill. Pundits have been debating Obama’s proposals for the last few months, but the best commentary on the president’s tax plan comes from the September 24 issue of the British newsweekly The Economist.

On taxes, Mr Obama has stapled together a clutch of previous proposals: returning tax rates on the wealthy to where they were before Mr Bush cut them in 2001, and curbing deductions such as those for municipal-bond interest, mortgages and charitable giving. He proposes a new “Buffett” tax, named after the billionaire investor who has protested against the injustice of paying a lower tax rate than his secretary. It would require anyone earning more than $1m to pay a tax rate equal to that of the middle class, though how that could be done is completely obscure.

Republicans accused Mr Obama of class warfare; he responded that “this is not class warfare. It’s math. The money is going to have to come from someplace.” But that is disingenuous. Maths demands that substantial money should be raised, not that it should all come from the wealthiest 2% of citizens, nor that Mr Obama should stick to his promise that 98% of households must never pay higher rates.

[emphasis added]

As I will (probably) say several times in future posts over the next few years, America is in deep fiscal trouble and to get out of it we will all have to bear some of the burden of higher taxes and reduced spending. Those on the left shout that we can’t “balance the budget on the backs of the poor”, but it is equally true that we can’t balance the budget on the backs of the rich. (As this article explains, it is not only true that we shouldn’t balance the budget on the backs of the rich, for reasons of economic efficiency and growth, but it is also true that we literally can’t balance the budget by hiking taxes on the rich, as the amount that would be raised by Obama’s potential tax increases is only a small fraction of what is needed to close the US budget deficit.) While wealthier Americans will pay proportionally more under any revenue-increasing tax reform (just as they pay proportionally more under our current system), Obama’s idea is to force high earners, small-business owners, and large corporations to bear virtually all of the burden of paying for our nation’s out-of-control spending. As The Economist continues,

Billionaires and secretaries will both surely have to pay more taxes; record deficits have long since replaced the surpluses of 2001, thanks in large part to Mr Bush’s across-the-board tax cuts. Yet Mr Obama is going about it in a clumsy way. Consider those millionaires he is insisting should pay more: there are 433,000 of them, or 0.3% of all taxpayers, according to the Tax Policy Centre, a non-partisan research outfit. On average they pay 20% of their income in federal income and payroll taxes, while the median taxpayer pays 11%. Just under a quarter of the millionaires pay as little, or less, than that median, a phenomenon almost entirely due to the lower rate levied on capital gains and dividends.

A far more efficient way to collect more taxes would be a genuine tax reform that maintained or lowered marginal rates while curbing the exemptions, credits and deductions that cost $1 trillion a year, including the lower rate for capital gains and dividends. This would boost productivity by making the tax code more efficient, while shifting more of the tax burden to the rich who now benefit disproportionately from such exemptions and account for Mr Buffett’s sub-secretarial tax rate. A lower corporate rate would offset the harm of higher capital gains and dividend taxes.

Or, as they will teach you in any public economics class, the solution is to “broaden the base and lower the rate”. While I don’t agree completely with The Economist‘s prescription (Milton Friedman persuasively argued that corporate income should not be taxed at all), it is far more reasonable than Obama’s proposals. The president can say a million times that his ideas represent “common sense” or the “balanced approach”, but that doesn’t make it true.

Posted in Economics, Politics | 1 Comment »

How terribly strange to be seventy (part 2)

Posted by Eliot Weinstein on October 13, 2011

Today (October 13, 2011) marks the 70th birthday of the chart-topping singer-songwriter Paul Simon. First gaining fame as one-half of the folk-rock duo Simon & Garfunkel, Simon wrote several #1 hits including “The Sound of Silence“, “Mrs. Robinson“, and “Bridge Over Troubled Water“, the latter of which edged out The Beatles’ “Let it Be” on the US and UK charts in 1970. After “Bridge Over Troubled Water” (and the release of the album of the same name), Simon & Garfunkel disbanded, and Simon went on to a highly successful solo career, which included the critically-acclaimed albums Graceland and The Rhythm of the Saints that both topped the UK charts and eventually received multi-platinum certification in the US and the UK. Simon has received 13 Grammy Awards, is a member of the Rock and Roll Hall of Fame, and in 2007 he was awarded the inaugural Library of Congress Gershwin Prize for Popular Song.

Paul Simon is, by a large margin, my favorite contemporary popular musician. In my personal ranking, he sits just beneath The Beatles and Bob Dylan as the third-greatest popular musician or group of any era. Even so, I recognize that his music, while it ranges widely across styles and topics, isn’t for everyone. Simon’s best songs are outstanding, but much of his music isn’t as accessible as that of Lennon and McCartney. A large part of what attracts me to Simon’s songs is his overt intellectualism. Simon, who once rhymed the word “thirteen” with “mezzanine” and “St. Augustine”, is one of the most intellectual popular songwriters in human history. His songs, dating back to the 1960s, have repeatedly explored psychological themes such as Freudian analysis, social influences on behavior, and disorders like depression and anxiety. Simon’s more recent songs have pondered the ideas of love, faith, God, man’s place in the universe, and finding integrity through one’s work. Simon’s songs are always about something, even if that something is an abstract concept like pain or loneliness. As Don Shewey wrote in Rolling Stone reviewing Simon’s 1983 album Hearts and Bones,

In an earlier era, Paul Simon would have written for Broadway, a craft that demands that a song tell a story or define a character. But like any youngster in the Fifties, he got hooked on the sheer sexual energy of rock & roll — not so much the guitar-based electricity of Chuck Berry, Elvis and the Beatles, but the dreamy soulfulness of groups that euphemized their teenage romantic longings in nonsense lyrics. The trouble was that Simon was too clever for either kind of rock & roll. The words always came first for him, the music was secondary, and the rock & roll he loved — the delicate Spanish guitar, the hushed doo-wop harmonies — lingered faintly in the distance like a disembodied ideal.

As is appropriate for a songwriter who prioritizes the words over the music and the rhythm, Simon has contemplated many issues of great importance to the American (and the Jewish-American) experience, while rarely being overtly political. A few of Simon’s songs represent the straightforward protest sentiments that birthed the folk-rock movement, particularly “The Sound of Silence” from his Simon & Garfunkel years and “American Tune” from his solo years. But the more important thread running through Simon’s music is the transformation of alienation and skepticism into searching and agnosticism, and eventually the transformation of searching and agnosticism into faith and self-acceptance. Simon & Garfunkel music is often considered to epitomize teenage and young adult feelings of loneliness and alienation, so much so that Simon’s songs with Garfunkel were mocked for this quality in an episode of That ’70s Show (from season 4, if I’m not mistaken), as well as in last week’s episode of the recently-debuted comedy New Girl. As his career progressed, Simon’s modernist skepticism, demonstrated in “The Dangling Conversation” from the 1966 album Parsley, Sage, Rosemary and Thyme, and his doubts in (and disdain for) religion seen in several songs, including “Ace in the Hole” from the 1980 album One-Trick Pony, eventually softened into a neutral agnosticism.

By 1983’s Hearts and Bones, Simon’s certainty in his own intellectual prowess was waning, as exemplified by him having not one, but two songs proclaiming that he “Think[s] Too Much”. It is clear that Simon was realizing that there were more things in heaven and earth than were dreamt of in his philosophy. The turning point arrived with Simon’s 1986 album Graceland (which won the Grammy Award for Album of the Year), as Simon began to accept spirituality as a mode of expression. In the title track, he famously sings, “Maybe I’ve a reason to believe / We all will be received / In Graceland”. As reviewers noted, Simon had turned the final home of the bloated and drug-addled Elvis Presley into a “holy place”, a symbol of potential redemption for himself, his son, and his fellow Memphis-bound pilgrims. As he highlighted the injustice of South African apartheid and bolstered the stature of the nascent genre of “worldbeat” with the success of Graceland, Simon continued to become more open to faith and spirituality. This is further demonstrated in his 1990 follow-up to Graceland, entitled The Rhythm of the Saints. In the opening track of that album, “The Obvious Child” (which received much airtime in the US and reached #15 on the UK charts) Simon asserts that faith is, if not a certainty, then at least a possibility. In the third song on The Rhythm of the Saints, “The Coast”, Simon makes what amounts to the most earnest and heartfelt case a New York Jew could possibly make for Christianity, specifically the Roman Catholic variety that predominates in Brazil. (After Paul Simon gave a recent live performance, Paul McCartney, who had been watching the show and was struck by the prevalence of Christian themes, came backstage and asked Simon, “Aren’t you Jewish?”) Although Simon attacks and partially dismantles this case for faith in the next song on the album, “Proof“, I (myself a Jew from a major northern US city–Chicago) have always been left with an appreciation for the immense beauty that Simon spins into “The Coast” and intertwines with his interpretation of Christianity.

Simon’s next studio album, You’re The One, reflects an understanding of both the positive and negative qualities of religious faith, especially in the song “Señorita with a Necklace of Tears”. On his 2006 album Surprise, Simon again makes statements of both faith and of skepticism. The skepticism appears in the somewhat-obviously-titled “I Don’t Believe”, and the song “How Can You Live in the Northeast?” demonstrates how religion can divide us, but Simon also portrays the more positive aspects of religion in a few songs, especially the hauntingly beautiful “Wartime Prayers”, and the final verse of “Once Upon a Time There Was an Ocean” (my favorite track on that album). Fully half of the songs from Simon’s most recent album, So Beautiful or So What (released earlier this year), contain references to God, religion, or other faith-related concepts. More importantly, these concepts are presented in a mostly-positive manner. While the song “The Afterlife” presents, well, the afterlife, as a bureaucracy where “You got to fill out the form first / And then you wait in the line”, and the song “Love Is Eternal Sacred Light” presents God as somewhat of a trickster, several songs, including “Love and Blessings” and “The Afterlife”, associate God and His Love with music, something that Simon strongly believes (as he illustrates in many songs, including “Ace in the Hole”) can provide redemption. Simon also makes the point throughout So Beautiful or So What that God, and not just the Devil, is in the details, and that we can find indications of a higher power in fleeting moments of everyday beauty. Simon’s transformation, over the course of his career, from an angst-filled modernist skeptic hostile to religion into a musical wise-man who shows us the positive sides of religion, faith, and spirituality as well as the negative, is remarkable, and I find the arc of his career to be personally inspirational.

It is hard to believe that Paul Simon, who once sang, “I started to think too much / when I was twelve going on thirteen” (in the song “Think Too Much (a)” from Hearts and Bones, which I often consider to be a personal anthem) is now a septuagenarian. Fittingly, however, Simon predicted his own senescence in the song “Old Friends”, which Simon sang, along with Art Garfunkel, on the 1968 album Bookends:

Can you imagine us
Years from today
Sharing a park bench quietly?
How terribly strange
To be seventy

Happy 70th Birthday, Paul! I hope that you have a great day, and that you can spend it with your wife and children, and not sitting on a cold park bench with Art Garfunkel.

Posted in Music | Comments Off on How terribly strange to be seventy (part 2)

Thomas J. Sargent and Christopher A. Sims share Economics Nobel

Posted by Eliot Weinstein on October 10, 2011

The 2011 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel was jointly awarded today to Thomas J. Sargent and Christopher A. Sims “for their empirical research on cause and effect in the macroeconomy”.

Thomas J. Sargent, currently a professor at New York University, is a macroeconomic theorist who has contributed substantially to the fields of pure macroeconomic theory, monetary theory, and economic history. He was one of the leaders of the “rational expectations revolution” in macroeconomics and his work helped to establish the New Classical School of economics. More recently, Sargent has also developed economic models that incorporate learning and bounded rationality. Here is Tyler Cowen explaining Sargent’s contributions to economics.

Christopher A. Sims, currently a professor at Princeton University, is a macroeconometrician who led the profession in applying the technique of Vector Auto-Regression (VAR) to empirical macroeconomics. He also pioneered the use of impulse response functions in macroeconomics. Here is Tyler Cowen explaining Sims’s contributions to economics.

Although it is sometimes a mistake to interpret the Sveriges Riksbank Prize through a political lens, in my opinion today’s award represents a partial vindication of the free-market “freshwater approach” to macroeconomics (associated with the University of Chicago, the University of Minnesota, Carnegie Mellon University, and the University of Rochester) whose reputation has been unfairly dragged through the mud during the recent financial crisis. It equally represents a rebuke to the dirigiste “saltwater approach” to macroeconomics (associated with Harvard, MIT, and Berkeley, among others) and especially to the pre-1980s “dinosaur Keynesianism” espoused by Paul Krugman, who was awarded the Sveriges Riksbank Prize in 2008 amid what many said was an ideological victory for Keynesian Economics over Classical Economics. With today’s prize award, the wheel has turned. The “rational expectations” economists, led by Sargent and his allies Robert E. Lucas, Nancy L. Stokey, and Edward C. Prescott, proved that Keynesian Economics had an unsound theoretical foundation, while Sims demonstrated empirically with his VARs that the prevailing (Keynesian) economic models of the 1970s had mediocre predictive power. Today’s prize honors the contributions of two preeminent economists, and reflects the shift in the economics profession ushered in by their contributions.

[cross-posted at erweinstein.tumblr.com]

Posted in Economics | 4 Comments »

End of line: Steve Jobs dies at 56

Posted by Eliot Weinstein on October 5, 2011

Major media outlets are reporting that Steve Jobs, co-founder and former CEO of Apple, has died at age 56.

There is very little that I can add to the tributes and obituaries that have already been published. Although Jobs himself denied that technology has the power to substantively change the world, this claim, coming from Jobs, is self-refuting. We are living today in a world fundamentally shaped by the innovations Steve Jobs pioneered in the fields of computing, animation, consumer electronics, and personal media consumption.

Here is a video of Jobs giving a moving and inspirational commencement speech at Stanford University.

Posted in Technology | Comments Off on End of line: Steve Jobs dies at 56