72 Comments

Sorry- I don’t want to rely on bureaucrats to pick winners. Government isn’t short of academically smart people- the issue is corruption, not smarts, and the US doesn’t have a history or tradition of technocratic and impartial bureaucracy. We are not Scandinavia or Germany or Japan. Probably closer to Sicily. There have always been smart underlings- the issue is that special interests and donors control their bosses. Tax credits or broad subsidies will allow the market to pick the winners. By the way. If you wish to have a program with some continuity, it needs to be passed on a bipartisan basis.

As for the 1990s fiscal policy, a big impact came from the Reagan-O’Neill social security tax hike and build up of surpluses there, plus the cuts in military spending.

President Obama reinstated something close to the Clinton taxes (with higher capital gains and dividend taxes plus the Medicare tax on investment income) and the tax take as a percent of GDP wasn’t very impressive.

Agree the pass through system is a scam, but I don’t think taxing businesses is very efficient. As we have seen with big tech and pharma and other IP-driven businesses of the future, corporate taxes are easy to evade and create disincentives and arbitrage.

Let’s tax people (and the revenues businesses make selling to people). Eliminate the corporate tax in favor of a GST on revenues with deductions for domestic labor expenses (perhaps up to a salary cap per worker) and domestic inputs. Stimulates production for export and also ensures that Google, Apple, Pfizer, et al pay taxes on what they sell here (obviously, like all business taxes, it is the people really paying the tax rather than the business). Supermarkets have a lot of domestic expenses so the effective GST for them will be very low, while the tech companies have huge profit margins and foreign royalty expenses from American IP they shifted to Ireland, Lux, Switzerland, etc which would not be deductible.

Tax capital gains as ordinary income and eliminate most deductions (except for a standard deduction). Perhaps give everyone 20k per year (carried forward) they can use as an exclusion for capital gains and investment income, for mortgage borrowing, for charitable contributions, state taxes, whatever), Eliminate the estate tax and step up basis on death and apply a capital gains tax at death (as Canada does or did) maybe with a few million exclusion before taxes apply a deferral for family-run businesses, farms, etc. Eliminate the charitable deduction for appreciated assets donated to foundations, endowments and DAFs. An immediate deduction should only be available for funds meant to be distributed that year in actual charity. Tax the investment income in foundations and endowments that hasn’t been distributed (on a rolling 3-5 year average basis to allow for losses).

It is illuminating that with all of your proposed tax hikes, only about 1/4 of the current deficit is covered and these tax hikes fall on the middle class as well as the rich. Puts to rest the campaign BS that we can have all sorts of new spending programs paid for by the rich. The rich can’t even cover our current deficits let alone any new handout. How would the Dems do in elections if people were told they were facing massive tax hikes just to cover the status quo- no more freebies, in fact, no freebies? How would the Repubs do in elections if people were told there would be no more tax cuts- instead, tax hikes?

Having lived in Europe where voters know that social democracy is paid for via regressive taxation and high average taxes on the middle and professional classes, and these voters accept that fact from both the right and the left, I find it curious that Dems have trouble winning elections selling the lie that the rich will pay for everything. How many votes would be won telling people (as in Europe) that you will be paying for your own benefits via regressive taxation?

While people talk about “entitlements” and then turn to social security and Medicare, the reality is that the annual deficits in social security and Medicare are fairly small and manageable as a percentage of GDP- though they will be problematic 10-15 years out.

“Entitlements” also include things like Medicaid and Obamacare which have skyrocketed and most people don’t consider to be “entitlements” like something they’ve had to pay payroll taxes on for decades.

Moreover the scam under budget reconciliation has been to “cut” Medicare (or use the social security surplus, during the GW Bush years) and then spend those “savings” (say, prescription drug negotiations or lower hospital reimbursements) on some new handout in perpetuity. Only in government could use alleged/projected savings from an insolvent program justify a spending blowout. As if you know your mortgage payment is going to reset in a few years from $2k a month to an unaffordable $5k a month. But good news - the bank has agreed to cut that to a still unaffordable $4.5k…….so of course you immediately go out and increase your spending today by $500 a month.

Would love to change the reconciliation rules so that any payroll tax hikes or benefit/expense reductions in social security or Medicare could only be used to make those programs more solvent (the Al Gore “lockbox”).

Meanwhile, outside of those old age programs, there is zero reason at full employment why the rest of government spending shouldn’t be completely balanced. Would love to see proposals from both parties on how they would balance non-soc sec and Medicare spending. Would be amusing and eye opening. People have no idea how big a hole we have dug,

Not to worry, if Trump is elected and Republicans take tbe senate the media will decide that the deficit is suddenly an issue again.

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<I don’t want to rely on bureaucrats to pick winners.>

Governments pick winners and losers all the time. More often than not this is at the industry-level rather than the firm level: the excessive prioritization of the F-35 fighter jet has provided a continuous windfall for Lockheed Martin while taking money and resources away from more effective projects in drone and UAV technology. Embracing the dollar as the reserve currency of the world made it appreciate relative to other currencies and put medium and high value-added manufacturing (machine tools, automobiles, semiconductors, etc.) at a disadvantage relative to other countries like Germany and China. Every decision the government makes produces a winner and a loser; it's high time we acknowledge this and start thinking about which industries we want to promote and which ones we let fend for themselves.

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The problem is, China is going to massively subsidize key industries. How do our firms compete with this without getting similar government support? How does the government provide support without “picking winners?” We can’t subsidize everything.

“Not picking winners” makes a lot of sense in a fair trade environment. We’re not in that anymore.

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The classical answer to "How do our firms compete with this without getting similar government support?" is "They go out of business." If China wants to e.g. sell solar panels at a loss (once you count the government subsidy), then "we" collectively do better by buying solar panels subsidized by Chinese taxpayers than by making them ourselves. If you really wan to maximize the per-capita GDP or income, that's how to do it.

But the bitter pill is that everybody working in every industry has to accept that the actions of other governments might destroy their livelihood at any moment. "that doesn't preclude the possibility that some people will be permanently worse off for the rest of their lifespan" And contrary to classical economics, what people want isn't to maximize their consumption but to maximize the *security* of their consumption, or more exactly, the security of their *place in society*.

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Why isn't the answer to unfair Chinese competition simply "embargo China, and encourage the rest of the Free World to follow suit"?

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Passing an embargo (especially on a country as important to the global economy as China) legitimizes it as a policy tool and makes it more likely that other countries (India, Brazil, Russia, etc.) will embargo their particular enemies (Pakistan, the United States, etc.). The global market will fragment into rival trading blocs, and the dreams of globalization and free trade will once again be relegated to the academic/policymaking fringe. In other words, a free-trade absolutist's nightmare.

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Might’ve worked in the 90s, but we don’t have the power to do this anymore. The non-free world controls most raw resources (concrete, steels, metal mining, etc), almost all rare earth refining, critical inputs for almost everything complex that we manufacture, etc.

We also wouldn’t necessarily be able to do this - getting Germany would probably be impossible, let alone Brazil, India, almost all of Africa, etc.

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Not to mention the inflation would be much, much worse than the last few years - wouldn’t be politically sustainable in the US either

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... The winning move is to *not* embargo China when all the countries you're competing against *do*.

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The video of the hippie Phish chick is classic. No phone in hand, but rather a cigarette. Takes me back. Sadly, those carefree days are gone. The end of history didn't work out so well and we blew that peace dividend to smithereens. Hindsight is 20/20.

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Like the 70’s but richer.

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Yep. Inflation made people feel poorer. In the 70s the decadence seemed more toxic, plus things were going downhill and not up. There was do optimism in the 90s.

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My basic view is that smartphones made life better in a small set of extremely discrete and essentially enumerable ways, but worse in the sort of generalized societal remainder and overall impact

Better: Google maps, waiting in offices or for appointments or other times activities, listening to music or audiobooks, high quality camera and photo viewing wherever you went (I'm sure people consider this a mixed bag in many cases but I think on net it's a clear improvement where the good applications outweigh the bad ones). Airport check-in. Apple pay at grocery stores. FaceTime.

Worse: Basically everything else.

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I think those carefree days will come again, it is hard but you are starting to see some counter culture to the Tik Tok influencer stuff emerge. I just don't know how far it can run given culture is simmering in a soup of constant media consumption...

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Paul Kingsnorth's (writes here on Substack) lifestyle actually reflects his de-growth ideas -- he ripped the toilets out of hew newly bought Irish cabin and put in 5 gallon buckets that he empties into his compost bin each day. (I don't know if he uses a washing machine though.) However, Paul is a rare and somewhat odd duck -- great writer though.

On taxes, you are picking the high point of Tax/GDP ratio of the last 70 years. It's not like 1998's 19.8% was typical: 17.5% is about the average, and the long term trend is totally flat since the 50's. Rev/GDP has never actually hit 20%, and there's a good argument that 1998 was a dot-com bubble fluke.

https://fred.stlouisfed.org/series/FYFRGDA188S

However... I'm on the Right (gee, you didn't know that, Noah :-) and am 100% on board with the Zidar and Zwick proposal. Tax increases are necessary and they must be broadly based (there aren't enough rich people to fix this.) However... to bring us conservatives and postliberals along, the Left has to be willing to make real, hard cuts in spending: close entire cabinet departments, enact Gramm-Rudman style budgets, or make permanent changes to Medicare and SS. We're not fixing this with tweaks to discretionary spending: https://www.cbo.gov/publication/59727 Cutting ALL discretionary spending still won't eliminate the deficit. A good many of us on the Right are convincible, but we've got to see comparable concessions. (I would say military cuts, but in truth, I think you and I agree that our military is already overstretched and dangerously outclassed.)

https://fred.stlouisfed.org/series/FYFSGDA188S

This isn't just a matter of "I give so you have to too". Our deficit is currently at 6% of GDP. Balancing that on taxes alone would require a 22%+ Rev/GDP ratio, a level that Americans have never experienced. (Personally, I think the debt problem is serious enough that it justifies this level of taxation on a temporary basis, but I am in the vast minority.)

And slacker culture was cool. Speaking of which, where's the 15-hour work-week Keynes promised my grandfather? I think want time to slack again!

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80% of the reason the slaker girl video is popular is because she's attractive. But, i prefer girls who shower regularly. That's just just me. YMMV.

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The proper term for girls like that is wooks. I'm not sure if slacker is accurate. Being that kind of bum can be a lot of work.

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I had to look up "wook" - but that is spot on. We live PT on Kauai island. No shortage of mainland wooks that somehow scape up airfare to get to the island, but are otherwise nearly broke. They are bums, basically. The only way I give them a ride (they are always hitch hiking, of course) is if they sit in the bed of the truck. No wooks in the cab.

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I've always associated Wooks with being male. Were there ever female Wookies in Star Wars? I guess they have to reproduce some how.

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There are many opportunities for increasing revenues while also reducing the deadweight loss of taxes:

Eliminate all taxes on business income and impute income to owners' personal income.

Tax non-saved, non-reinvested income at sharply progressive rates so as to collect more than is currently collected by income and business taxes combined.

Raise the EITC.

Replace the wage tax with a VAT that fully funds Social Security, Medicare, Medicaid, more generous unemployment benefits (whose levels and duration are tied to unemployment levels, and a child allowance.

Tax net emissions of CO2 with revenue rebated pro rata.

Tax revenues should be enough that deficits < Σ(expenditures with NPV>0)

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Love the VAT idea. Not sure I trust our current national ruling class with such a powerful tool, but it has the distinct benefit of taxing precisely what we need less of (conspicuous consumption) and leaving what we need more of (investment) untaxed.

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Isn’t your third point the same as a VAT? Non-saved, non-reinvested income would be spending. This may be a better way of collecting it. I agree with this wholeheartedly, we should be using the tax code to encourage good behavior like saving and investing rather than keeping up with the Jones’s.

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Your depiction of the 90's certainly describes the late 90's, but I'm not quite sure it fits the late 80's early 90's which I associate with the slacker era. ( the movie Slacker came out in 1990, the year I graduated college). The talk of the time was of 'jobless recoveries' and how gen-x will be the first generation to do worse than there parents etc. It was the aftermath of the S&L/Junk Bond crisis that torpedoed George I's reelection. I remember that period fondly, but not because 'it was a time of full employment and rising wealth' or because our 'future was guaranteed'. We had fun, but it was not a time of great optimism. That came later.

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Did Bill Clinton win two terms largely because Ross Perot split the conservative vote?

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"If you want to tax the rich, you should tax pass-through business income."

We do tax this income. It is passed through to individuals and is treated as personal income for the purposes of Local, State, and Federal Income Taxes. What is really being proposed is that we double tax the income of anyone who takes advantage of a legal structure which limits liability, provides structure, and/or can be used to receive business-specific government handouts.

The handouts are unhelpfully redistributive and the structural advantages are minimal. But forcing business owners to choose between higher taxes and no liability limits will reduce entrepreneurism. If taxes must increase, just change the rates. The tax will have a broader impact and will need to be adopted without the implied demagoguery of going after everyone who had the gall to start a business.

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Most LLCs, by a very large margin, are small businesses and are NOT owned by rich people. They are primarily set up to limit liability and allow the deduction of expenses. They are already taxed as income.

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What's the book?!

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I also wanted to know this one, love to feature you on Shepherd.com sometime Noah!

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I am early Gen X and I have a very different take. Only 30% of us went to college and the economy was bleak for those looking for good blue collar jobs. The eighties were peak hollowing of the rust belt time and all the manufacturing jobs were going overseas, or being automated. Car makers were moving south to avoid unions and incomes for men without college degrees declined for over a decade. Unemployment rates hovered between 6-8% and was higher for younger workers. In my Northern California lumber mill town most of the lumber had been cut and there was wave after wave of layoffs. They blamed Earth First environmentalists but I think most knew better. As a high schooler, I competed with adults with families for $3.35/hour fast food jobs. This was Born in The USA Gen X era.

Things briefly looked up in the late 80s and then a recession pushed unemployment rates back up to the 8s again. This was when the movie Slacker came out. It was keenly obvious to us of all that the ever increasing standards of living which had seemed our American birthright was over: we were the first generation that was going to be poorer than our parents, the Boomers, who had been able to raise a family, have a good career with a pension, and have a nice house in a suburb on one income (or so we believed, from our Brady Bunch view of reality). This was the Smells Like Teen Spirit era for Gen X.

This was also the period when wage inequality really started to spike. Wages broadly across the economy for non-supervisory workers were flat from 1978 to 2003. There was no real wage growth broadly, while the 1% (we didn’t call them that) were doing very well. We saw them driving BMWs on TV while the War in Drugs kicked into high gear. Prison populations spiked up to 1.5M by 2000 - 5x what it had been 20 years earlier. This was the Police State (by Dead Presidents) era. Or perhaps Fuck The Police.

A lucky few of us discovered the Internet early and got jobs in an exciting and growing industry. I was one of those lucky (skillful? wise? … mostly just lucky) few and had it good for a while. But even that turned to a bust where most had to leave the industry.

Gen X were slackers not because our life was easy but because it was hard and people were hopeless. It was also an era where non-conformity was more tolerated, perhaps a leftover from the hippie era, but I’d like to think partially our own generally anti-authoritarian view of things. We broke into warehouses and abandoned factories to throw unauthorized raves and had our own underground punk, hip-hop, and gay communities. We took a lot more drugs and had a lot more sex than later generations. I think we even bested the Boomers. Today Amy would get arrested for vagrancy and escorted out of town in a police car.

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As ridiculous as Degrowth seems, I think that people, like Noah, who dismiss it so easily are off the mark as well. The idea that humans likely need to find some manner of reasonable restraint in our lives is a probable reality. Assuming our technology will always bail us out, no matter how obscenely the wealthy of the world consume seems an equally ridiculous, if not arrogant point of view. The question is how to approach that unprecedented cultural conversation in earnest.

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I dunno, man, I always felt like the slacker culture thing had a dark side. It valorized refusing to take responsibility for our collective future. I remember my peers in the nineties and early aughts actively taking _pride_ in not caring about politics. A ton of them bought into the Nader-ite "tweedle-dee and tweedle-dum" BS, and sat out the 2000 election. That idea, in no small part, gave us Dubya, whose LARP-ing as a cowboy hero got us the Iraq War, and the torture memos, and -- as you yourself have noted -- a massive crack in the foundations of the international order.

We don't all have to be try-hard grinds. I'm totally down with the John Adams line: "I must study politics and war, that my sons may have liberty to study mathematics and philosophy. My sons ought to study mathematics and philosophy, geography, natural history, naval architecture, navigation, commerce and agriculture, in order to give _their_ children a right to study painting, poetry, music, architecture, statuary, tapestry, and porcelain."

But part of being a well-rounded citizen who enjoys the arts is still, always, going to mean keeping at least a _little_ in touch with politics, including geopolitics. A tuned-out young man today who says, "Why should I care about Ukraine or Taiwan? I'm an American. Why should I care about abortion? I'm a man. Why should I care about a program to round up and deport immigrants? I'm a citizen," is a fool, and is hurting both himself and all of humanity's future. You may not care about politics, but politics cares about you.

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"there’s no longer the general feeling that dropping out of the rat race to smoke some weed and hang out with your friends for a year or two, or working part time while you make your own clothes, is an acceptable life choice."

Are you sure it wasn't just that you were 19 or 20 back then? I was 36 in 1996, had an elementary-aged kid, and a job I hated. When I was 19 or 20 in 1979, the world seemed a lot more open and flexible, and maybe following the Dead around for a year was an option, even though inflation was out of control and Jimmy Carter was unpopular. But when you're 19 you just don't care as much.

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Minor point maybe, but being a bit older than you Noah, I remember not just the tail end of the 90s that you do, but also the years from 1990-1993 where we had a recession and poor employment prospects particularly for young workers and particularly on the East Coast and Pacific Northwest. I think its an important distinction because I believe the slacker culture that you and I remember and appreciate (even if neither of us actually lived it personally with our careers) rose out of the late 80's/early 90's poor economy, not from the full employment "roaring 90s" of the Clinton years we now associate with the decade. I think it was actually the the combination of poor employment opportunities combined with very cheap rents and relatively low cost of living earlier in the decade that enabled the slacker culture. Back then "slacking" could include paying $200/month in an urban area like SF, NYC, or Seattle to share a large old, declining but formerly grand Victorian home/apartment with a group of friends. Today would be slackers basically need to live with their parents for the finances to work. Beyond the cost of housing, I think a challenge of going back to a slacker culture today is the proliferation of technology, social apps, and targeted online ads that constantly show us how others are richer, happier, etc. and raise our collective anxiety for missing out.

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Thanks Noah, as always I love your interesting takes and perspectives.

However as a mid-Millennial: I think the reason there is so much tension and uncertainty these days for the tail end of my generation and Gen Z is that housing is just so damn expensive. With it being both one of the biggest expenses of your life and one of the biggest potential ways to build wealth, younger folks just feel they got the short end of the stick & left out, despite low unemployment and rising wages.

Thoughts?

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I love the reference to Robert Caro’s Path to Power. His writing has single-handedly changed how I view periods in US history

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I highly recommend you read Samuel Watling's "Why Britain doesn't build" at https://worksinprogress.co/issue/why-britain-doesnt-build/ if you want to get an impression of the sheer power of Britain's NIMBYs going back to before World War II (when the Council for the Preservation of Rural England was established).

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I don't know much about it specifically, but what blew my mind was watching Clarkson's Farm with my son and seeing the local council kill off his restaurant and generally make his life hell for trying to start a business. How on earth can British people be ok with this? These were good jobs, and good income for local farmers, it just blew my mind that a local council could do this.

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Thanks, I lived in London and have experienced some of the consequences of this idiocy.

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Earth didn't get bigger as population doubled twice from 2 billion in 1930 to 8 billion in 2022. Inability to get carbon emissions down fast enough, or even down at all, and the fact that cumulative carbon is what matters, means we are in serious overshoot. Growth drives emissions. Technology improvements need to halve carbon energy/$ of GDP every 25 years with 3% growth. It ain't happening. De-growth is the path to prosperity and avoiding an extinction event, Miami under water, etc. Scarcity caused by growth is not cured by more growth. It is hard to get people to consume less, but it is (relatively) easy to get fertility norms down. The world has moved from six births/woman to 2.3 births/woman. Every birth passed up means about another million bucks at retirement for the frugal or a much enhanced lifestyle for the hedonists. So population decline is a feasible well-incentivized path to prosperity. You will notice that people are not suffering in countries with declining populations despite the "birth dearth" whining by pro-growth ideologues (i.e. most economists except for the Ecological Economists and Biophysical Economists--people who remember that physics exists and the world has limits.) "Old" countries can still out-innovate "young" countries because they can afford better educational institutions and more R&D which is where innovations actually come from. Patent applications from African subsistence farmers with six kids are few. Old countries include China, Korea, Japan, and Germany. Question: Where did your last car or TV or computer come from? Sorry, left out "old" Taiwan--that's where the most advanced chips are made. Family planning liberated women in the "developed" world. Universal family planning could make ending hunger, slowing climate change, and even peace in the Middle East all a lot more likely. We can even hope the Russian birth dearth will end with Putin running out of cannon fodder.

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