The View from Right Field

Why Would Joe Girardi Want to Manage the Chicago Cubs?

With Lou Piniella first not coming back next year and now gone, people are talking about who will be the manager of the Cubs in 2011.  Many of the names are obvious: Mike Quade, Ryne Sandberg, Bob Brenley.*  Others a little less so: Eric Wedge, Fredi Gonzalez.  But the one name that makes no sense to me is Joe Girardi.  I am not saying I would not want Joe Girardi.  I think he could be a great manager.  I would have rather had him than Lou Piniella back in 2007.**  But I can’t figure out why he would want to manage the Cubs.  I mean, he is managing the New York Yankees.  He won the World Series last year.  The Yankees have the biggest budget in baseball.  They are tied for the best record in baseball.  Why would he want to leave? 

I know he grew up a Cubs fan, but when he wanted to manage the Cubs in 2007, after being named the National League manager of the year in 2006, he was turned down because Jim Hendry was looking for another big-name manager to follow Dusty Baker.  The Cubs have lost six games in the playoffs in the four years since then.  The Yankees, as I said, won the World Series last year and have a great chance to be back there in 2010.

Joe Girardi may have grown up a Cubs fan, but he is not stupid.  He’s got a great job managing the Yankees.  I can’t see why he would want the hassle of managing the Chicago Cubs instead.

One last comment.  Read this article.  It is not about Joe Girardi managing the Cubs, but it does mention Joe Girardi, and it is an inspiring story.  And it reminds you of Greg in “Bleacher Bums”.

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* I can’t help but wonder if Bob Brenley might be the guy to give some of our veterans a kick where they need it.  When I see Alfonso Soriano turn a double into a single (or a possible inside-the-park-home run into a triple) because he doesn’t run hard out of the batter’s box, I wonder if Brenley could help.  Of course, when I see Aramis Ramirez fielding ground balls on his side, instead of getting in front of them, I think we may need Lou Brown, who explained it to his third baseman this way:  “Come on Dorn, get in front of the damn ball! Don't give me this ‘olé’ bullshit!”

** Please understand I am not knocking Lou Piniella.  He has been fine.  I just would have preferred Girardi after 2006, especially if it would have been in conjunction with a move to play young guys.  Instead, we hired Piniella and spent over $225 million on long-term contracts for outfielders over the next 3+ years (and you can see how well that turned out), as well as probably close to $200 million on pitchers.  And that doesn’t even include the contracts for Derrek Lee and Aramis Ramirez.

Update (9/1/10 8:50 pm): Please see “Why Would Joe Girardi Want to Manage the Chicago Cubs? - Part 2” here.  They should be read together.

A Mistake on Inflation; Thoughts on Housing

As the reader(s) of this blog may remember, I have worried a lot about the inflation that I thought would come with all of the money the Federal Reserve has been pumping into the economy.  (Here and here)  Obviously, that has not happened.  That is because: (i) as the amount of money in the economy increased its velocity slowed down (which would mean that the increase in the money supply was not that much, if any), (ii) the inflation is still coming, it is just not here yet; or (iii) I was flat out wrong. 

In this regard, it seems only fair to note this article by Kartik Athreya: “Economics is Hard.  Don’t Let Bloggers Tell You Otherwise.”  Here is Dr. Athreya’s abstract of his article:

“In this essay, I argue that neither non-economist bloggers, nor economists who portray economics – especially macroeconomic policy – as a simple enterprise with clear conclusions, are likely to contribute any insight to discussions of economics and, as a result, should be ignored by an open-minded lay public.”*

 So, with both of those caveats/warnings in place, let me make a couple of comments on the situation in the housing market.   An interesting comment I read somewhere (unfortunately, I do not remember where) is that for decades federal policy, including the roles of Fannie Mae and Freddie Mac and the deductibility of home mortgage interest and property taxes, has been to keep housing and home ownership affordable. 

Now, federal policy, including Fannie and Freddie and things like the first-time buyer’s credit, seem more focused on stopping housing from becoming more affordable; i.e., the government is striving to keep housing prices up, which makes housing less affordable.

Clearly, the federal government is worried about the housing sector of the economy.  There seem to be several concerns.  If housing prices drop further, more people will be underwater,** which could increase defaults, foreclosures, etc.  Falling housing prices scare people and damage the confidence that is necessary for a recovery.  Falling housing prices could discourage spending by even people who still owe less money on their houses than they are worth because they feel less wealthy and more fearful for the future.  Etc. 

The federal government also wants to increase new housing starts, i.e., construction, as a way to boost the economy.  But with house prices falling, do people really want to buy/invest in a new house?  Why not wait to see if prices drop further before buying, whether a new house or an existing unit.  This problem is worsened by the overhang of unsold houses on the market.  We overbuilt during the bubble.  All those overbuilt houses are creating an excess of supply, at least at current prices, which inhibits new construction. 

Those are reasonable arguments/concerns, and I understand them.  But on the other hand, we have had a real housing bubble.  Prices rose way above what they should have been.  And now that the bubble has burst, prices have to come down.  Who is to say that prices today are right?  Prices are down, but maybe they have to go down further.  Maybe they are not down to their proper level yet.***  Is it realistic to expect the housing market to pick up before prices get to their proper, non-bubble level?  Of course, no one can know what the “proper non-bubble level” is, though if houses are not selling, that may be an indication that prices are not there yet.  Also, it is entirely possible that, in reacting to the bubble, the housing market will over-react, such that housing prices may actually go below a fair non-bubble level before they finally settle at some reasonable non-bubble value. 

So what is the role of government in all this?  Clearly, its role to this point has not been particularly helpful.  Whether government created the housing bubble (by keeping interest rates too low, too long in the 2002-early 2005 time period, the roles of Fannie and Freddie, “encouragement” of lenders to lend to poorer people who had problems keeping their houses once things started going wrong) or merely aided and abetted, it had a role.  Similarly, it has tried to do a lot of things since the bubble burst.  There have been mortgage modification programs, first time home buyer credits, increased activity of Fannie and Freddie, etc. 

It is disheartening (though to some, not surprising) that, in much of what it did, the government did not succeed in what it was trying to do and may have, in some cases, actually caused more problems than it solved.  Was trying to expand home ownership among people who were on the edge a good idea?  Did the Fed’s low interest rates from 2002 to early 2005 encourage people to use cheap money to buy and flip houses in a housing market that was already expanding too quickly?  What about the role of the rating agencies in giving AAA ratings to securities that apparently did not deserve them, a role that government ordained with legal requirements?  And what about Fannie and Freddie, which were not appropriately supervised because their friends in Congress assured us there was no problem? 

It seems to me that what we need is less government encouragement (i.e., subsidization) of home ownership.  Fannie and Freddie need to be phased out (even Barney Frank agrees with that).  Mortgage rates need to reach a more market-based level.  Until Fannie and Freddie are phased out, they need to increase the minimum down payments on mortgages they insure.  As I have commented before, 3.5% is too low of a down payment because buyers and sellers can game the system to turn that into virtually zero.  Maybe the tax deductibility of mortgage interest and property taxes needs to be looked at as part of a broad-based tax reform. 

But – and this is important – it is unclear whether the system is strong enough to handle a sudden change.  While these should be the goals that we work toward and the basis on which we judge proposed actions (i.e., will they help us get closer to our goals), our movement toward these goals must be measured.  We should work to get there, but we need to take it slowly and one step at a tine, so that any shocks to the system are minor and the system can adjust to the changes as they are implemented. 

In other words, while the goals should be clear, government needs to be less ambitious, and more modest, in how it gets there.  It may take longer, but it won’t create as many problems in the process of getting there.

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* Dr. Athreya has a PhD in economics and works in the Research Department for the Federal Reserve Bank of Richmond. 

** In this case, a house is considered to be “underwater” if the mortgage is more than the fair market value of the house.  It does not mean that the house is literally underwater.  That is more of a concern of Al Gore and his global warming/climate change acolytes.  They fear that global warming will raise the levels of oceans to such a degree that houses will literally be underwater – in which case they will probably also be financially underwater since it is hard to see how a house that is underwater would be worth much – either literally or financially. 

*** Actually, it seems fairly likely that housing prices are still above a proper non-bubble level, especially given the state of the economy.  Certainly the first time home buyer’s credit artificially increased the demand for housing (for a few months).  Now that the credit is gone, demand is down, both because people have less money to spend on houses and because at least some people who would have bought now, moved up their plans and bought before April 30.  That increased the demand in the spring.  But since those buyers bought in the spring, they are not part of demand for housing now.  Less demand now means lower prices and/or fewer sales now.

Update (8/31/10 9:00 am): Corrected a typo in the fifth paragraph.

Cubs Clearance Sale

I got this tweet from the Cubs today:

"Cubs Summer Clearance Sale now at http://bit.ly/ajJbg5 - Buy 1 Clearance item; get 2nd Clearance item for 40% off."

Are they talking about merchandise or players? 

Merle Hazard: "Double Dippin'"

I am on a vacation.  While I am gone, here is Merle Hazard's latest, yet another sad country song.

Where Will State and Local Governments Find the Money to Pay Their Bills? The Next Big Battle?

Willie Sutton is quoted as saying that he robbed banks because that’s where the money was.* Assuming state and local governments can’t rob banks, it seems there are three main places where they can get the money to cover their deficits: (i) raise taxes; (ii) cut spending on things like highways and schools and social services; or (iii) cut back on pensions and benefits for public employees, and maybe even limit salary increases.**

After the recent election in Great Britain, in which Labour was defeated after 13 years in power and a Conservative-Liberal Democrat coalition took over, the new government faced a budget deficit bigger than ours. In less than three months, they came up with a plan to deal with it, including raising some taxes and cutting spending, with £3 of spending cuts for every £1 of increased taxes.***

But they did more than just that. In a list of good things the Conservative-Lib Dem coalition is doing, Andreas Whittam Smith put this one at number 3:

"The question is at last being asked whether it is fair that through their taxes, employers and employees in the private sector should have to fund retirement benefits for public sector workers that in the private sector they cannot afford to arrange for themselves – pensions that are inflation-linked, guaranteed and unfunded. To study this scandal, a commission to review the long-term affordability of public sector pensions has been established."

This is a question that needs to be asked here, too. The arguments this question will generate will be mean and nasty, but questions such as this have to be discussed because the present course of spending on public employee compensation, whether for salaries, benefits or pensions, even with the kind of minor change Illinois passed (i.e., changing pensions for employees who had not been hired), is unsustainable.

In the past, the benefits and pensions that government employees received were justified on the grounds that their salaries were less. It is unclear if that is true today.**** But in any case, if public employees continue to receive salary increases (when private workers are having their wages frozen or even cut), great medical benefits (when private employers are raising deductibles and employee contributions, if not cancelling health plans entirely), and inflation-indexed pensions based on their last several years earnings (which few outside the public sector even have any more), either taxes will go up – maybe a lot – or spending on things such as highways and schools and social programs will have to be cut – maybe a lot.

The old stand-by, raising taxes on the rich, won’t work because the rich don’t have enough money to pay for it all.***** The middle class will have to pay, too. And that means many of them will see their taxes increased to provide benefits and pensions they can only dream about.

The alternative to raising taxes is to cut back on schools or infrastructure spending or on benefits for the poor and sick. It will be interesting, for example, to see what middle class parents do when they realize that the reason for the cuts in their children’s school programs is the costs of pension and medical programs for the teachers.

If it does come to this, we could wind up having a particularly nasty form of the kind of populist/envy politics in which so many politicians have engaged in the last few years.

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* He probably didn't actually say it.  See here.

** I did not include "cutting waste" as an option because that is pretty much baloney, and I am trying to be more honest than the average politician. Of course, given that I am from Illinois, that is not a very high standard.

*** "Radical Britain," The Economist, August 14, 2010 (print edition). While the new Conservative-Lib Dem coalition came up with their plan in less than three months, President Obama still hasn’t presented a detailed plan for dealing with our deficit. He’s waiting for the report of his National Commission on Fiscal Responsibility and Reform. Even though the commission was set up it in February, it won’t, somewhat conveniently, be reporting back until December; i.e., after the election.

**** Also, see "The Government Pay Boom," The Wall Street Journal, March 26, 2010.

***** And if you raise their taxes too much, they will just move.

What Our Afghanistan Policy Needs Most Is a President Who Actively Supports It

Rep. Frank Wolf, the congressman who originally proposed the Iraq Study Group, has written to President Obama, asking him to set up an Afghanistan-Pakistan Study Group. As I said almost four years ago, I respected the idea behind the Iraq Study Group. Rep. Wolf realized things were not going well in Iraq, maybe even before President Bush did.

Unfortunately, the Iraq Study Group’s proposals were not what we needed. However, at the same time the congressman was pushing for the Iraq Study Group, General David Petraeus and others were rewriting the US counterinsurgency manual, which was what we needed.

As I said, Rep. Wolf now wants an Af-Pak Study Group. He says that many of the senior diplomats, policy experts and members of the military he talked to "believe our Afghanistan policy is adrift, and all agreed that there is an urgent need for a bipartisan group to assess that policy and recommend a way forward."

He continued:

"Recent polls show American support for the Afghanistan war is at an all time low and different members of this administration have made conflicting statements regarding the goals and objectives in Afghanistan. I believe this lack of clarity is eroding public support for the war and adding to the uncertainty of victory in Afghanistan."*

Public support for Afghanistan is failing, but unlike Iraq in 2005 and 2006, the problem in Afghanistan is not that we have the wrong strategy. We have the right strategy. We know the general parameters of what we need to do.

Among the reasons for the erosion in public support is, as Congressman Wolf noted, conflicting statements by different members of the Obama administration. The solution, however, is not an Af-Pak study group, but a president who is willing to rally support for his policy in Afghanistan.

The Bush administration did a bad job in Iraq. While the invasion went well and General Petraeus turned things around in 2007-08, in between our policy was a disaster. But even when things were going poorly, there was never a doubt that George W. Bush was willing to spend his time, effort and political capital to support his policies in Iraq.

Over the last few days President Obama has been crisscrossing the country to raise money for Democrats for the fall election. He has spoken more than once about the proposed mosque near Ground Zero. But Afghanistan? Not much that I have seen. I would hope President Obama could find the time to speak out more forcefully in defense of what we are doing in Afghanistan. Those of us who favor those efforts need the President’s active support for his own policy

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* The newsletter from which these quotations were taken is not yet available on Rep. Wolf’s website. When it becomes available, I will link to it. In the meantime, here is the press release the congressman issued, including the letter he sent to the President.

Why Not Ryno, Too?

With Micah Hoffpauir coming back tomorrow, we will have nine players on the active roster who have played for the Iowa Cubs this year – and that doesn’t include Starlin Castro, who came straight up from the Double A Tennessee Smokies. Almost makes you wonder if the Cubs ought to bring up Ryne Sandberg, too.

Actually, I don’t mean that. I think Lou Piniella has handled the situation this year as well as could be expected. Much better than his predecessor did in 2006. Also, nobody should wish this team on a rookie manager. It would be unfair.

With some exceptions, it seems like a lot of the veterans we still have are the ones nobody else wants. If Ryne is going to get a chance, and I hope he does, he needs to start fresh in spring training so he can make it into his team. Mid-August is too late to do that.

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Update (8/19/11:05 pm): While the Cubs had planned to bring up Micah Hoffpauir, they couldn't.  Micah had been brought up when the Cubs were in San Francisco and Derrek Lee was on bereavement leave (because of his grandfather).  When Derrk returned (in St. Louis), Micah was sent back to Iowa.  At that point Micah had to stay in Iowa for ten days, unless there was an injury.  There was no injury, so he couldn't be brought up.  Sam Fuld, the one-man web-gem show, came instead.

Cubs: 2011

As 2010 winds down, what about 2011? Paul Sullivan said this in last Friday’s Chicago Tribune:

"With 11 rookies on their current roster and 15 having played for them this season, the Cubs are giving fans a glimpse of what the future would be like if they ever decided to rebuild.

While the "R-word" can't be uttered by a franchise that will have gone 102 years without a World Series championship, the fact that half of Iowa’s roster has spent time in Chicago is a testament to how quickly this season has gone sour."

This is a comment I hear a lot from Cubs fans – and Cubs’ management: It’s been 100 years. We can’t talk about rebuilding. It’s been too long. We have to win now. We can’t wait.

That all sounds good, but it’s not true. I don’t care how many years it has been. The best way to win is to develop your own players. And short cuts usually take longer.

Since at least the end of the 2006 season, and maybe before, the Cubs have been trying to win by buying. Jim Hendry has signed an overpaid outfielder to a long-term contract four years in a row, which isn’t easy to do when there are only three outfield positions. And he has been overpaying middle relievers and utility infielders, too. Last year’s disaster was Aaron Miles. This year it's John Grabow. And Jim Hendry often backloads the contracts, which helps in the first year, but ties your hands after that.

Obviously, we can’t totally rebuild next year. We have too many guys with big contracts that we could never get rid of. But instead of spending big bucks on even more soon-to-be-over-the-hill veterans (and guys who never got to the top of the hill to begin with), let’s give the kids a chance. After all, what did the Tribune-induced spending spree of 2006 through 2008 get us other than six losses in the playoffs and a two-year hangover?

It is not a matter of rebuilding. It is a matter of building. And the best way to build is to develop your own players. We are finally starting to do that. Let's keep it up. Real Cubs fans aren’t stupid. If the Cubs do it the right way, we’ll understand – and we’ll be there.

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P.S. I blame Pat Hughes and Dave Otto for what happened in the bottom of the ninth inning in yesterday’s game in St. Louis. Going into the ninth Pat said something to the effect that it was nice to have a game in St. Louis that wasn't a nail-biter. So what happened? The Cubs entered the bottom of the ninth with 9 to 2 lead.  The score was 9 to 7 with Cardinal runners on second and third before Carlos Marmol got the last out. Definitely Pat and Dave’s fault. They need to not say things like that. It was probably a good thing Ron wasn’t there.

VJ Day – 65 Years Ago

Today is the 65th anniversary of VJ Day, the day that World War II really ended. I remember my mother talking about how she felt when the Germans surrendered. She was happy, but her happiness was subdued. Her war wasn’t over. My dad was in the Philippines, and the Japanese didn’t look like they were going to surrender any time soon.

The Battle of Okinawa was only half over when the Germans surrendered. By the time it ended, an estimated 100,000 Japanese soldiers were killed. The US suffered 62,000 casualties, of which 12,000 were dead or missing. Estimates of civilian deaths range from 42,000 to 150,000. In other words, more died on Okinawa than at Hiroshima.

And that is why I thank President Harry Truman for dropping the atomic bombs on Hiroshima and Nagasaki. It saved lives. It saved American lives; it saved Japanese military lives; and it saved Japanese civilian lives.

I realize there are many people today who think we shouldn’t have dropped the bombs. Even some of our military leaders thought, after the fact, that it wasn’t necessary.

But if the Japanese were going to surrender anyway, why did it take two bombs to convince them to do so? Why didn’t they surrender after the bomb on Hiroshima? And why, even after the bomb was dropped on Nagasaki, was the Japanese war cabinet still evenly divided on whether to surrender or not, requiring the Emperor to make the decision?

On April 7, 1865, Abraham Lincoln sent this telegram to Ulysses S. Grant:

"Gen. Sheridan says ‘If the thing is pressed I think that Lee will surrender.' Let the thing be pressed."

In 1945 Harry Truman "let the thing be pressed" – in order to end the war - and stop the killing. It was the right thing to do.

What To Do With Taxes and the Bush Tax Cuts

With the infamous Bush tax cuts* expiring at the end of the year, we are seeing a big argument as to what we should do. With the state of the economy a little dicey, should the cuts be extended for everybody or is the deficit so big (and the alleged unfairness so great) that we need to let them expire for the "rich," while extending them for everybody else?

E.J. Dionne is pretty clear what he thinks:

"The simple truth is that the wealthy in the United States -- the people who have made almost all the income gains in recent years -- are undertaxed compared with everyone else.

Consider two reports from the Center on Budget and Policy Priorities. One, issued last month, highlighted findings from the Congressional Budget Office showing that ‘the gaps in after-tax income between the richest 1 percent of Americans and the middle and poorest fifths of the country more than tripled between 1979 and 2007,’ the period for which figures are available.

The other, from February, used Internal Revenue Service data to show that the effective federal income tax rate for the 400 taxpayers with the very highest incomes declined by nearly half in just over a decade, even as their pre-tax incomes have grown five times larger.

The study found that the top 400 households ‘paid 16.6 percent of their income in federal individual income taxes in 2007, down from 30 percent in 1995.’ We are talking here about truly rich people: Using 2007 dollars, it took an adjusted gross income of at least $35 million to get into the top 400 in 1992, and $139 million in 2007."

That is one way to look at it. On the other hand, in April it was estimated that 47% of U.S. households would owe no federal income federal income tax for 2009 and that 10% of the earners would pay 73% of the income tax.

But David Leonhardt of The New York Times argues that the 47% number is misleading because it doesn’t include things like social security taxes and Medicare taxes.** If you want to look at the question of the overall rate for all federal taxes, consider these numbers from Greg Mankiw and the Congressional Budget Office:

"[H]ere are effective federal tax rates (total taxes divided by total income) for 2005:

Lowest quintile: 4.3 percent
Second quintile: 9.9 percent
Middle quintile: 14.2 percent
Fourth quintile: 17.4 percent
Percentiles 81-90: 20.3 percent
Percentiles 91-95: 22.4 percent
Percentiles 96-99: 25.7 percent
Percentiles 99.0-99.5: 29.7 percent
Percentiles 99.5-99.9: 31.2 percent
Percentiles 99.9-99.99: 32.1 percent
Top 0.01 Percentile: 31.5 percent

[T]hat is … the rich face average tax rates more than twice those of the middle class, and about seven times those of the lowest quintile."

So is that good enough? Is that enough for the rich to pay? Back to Mr. Leonhardt:

"[These] numbers exaggerate how much of the tax burden falls on the wealthy. These numbers fail to account for the income that is hidden from tax collectors – a practice, research shows, that is more common among affluent families. ‘Because higher-income people are understating their income,’ Joel Slemrod, a tax scholar at the University of Michigan, says, ‘We’ve been overstating their average tax rates.’"

Of course, if you really want to really see people hide income, raise the rates. (At lower levels, income hiding may be more a matter of opportunity {i.e., one’s job and how one gets paid} than the amount of income.)

Those who want to extend the 2003 tax cuts for all but the wealthy, i.e., those who want to raise taxes on the rich, give three main reasons for doing so: (i) inequality has greatly increased over the last 30 years; (ii) the rich aren’t paying their fair share of taxes (alternatively: the rich aren’t paying enough taxes); and (iii) we have a big budget deficit and we have to start reducing it by increasing tax revenue. While on the surface it might seem that raising taxes on the rich would address all three of these problems, I’m not so sure. Let’s look at these reasons in more detail, in reverse order.

We have a big budget deficit and we should raise taxes on the rich to get more tax revenue. However, as I said before, if you think people hide income (or their boats) now in order to not pay taxes, try raising tax rates and see what happens. First, the rich will hire more tax lawyers and accountants to figure out ways to avoid those taxes.

Next, income will disappear – or at least "taxable income" will disappear. Stocks won’t be sold as often, which will reduce the amount of capital gains, which will reduce the amount of capital gains taxes collected. In other cases, instead of investing in companies that pay dividends, investors may shift to other companies that don’t generate taxable income for their stockholders. Municipal bonds, with their tax-free income, will increase in popularity. Other people may not work as hard if the taxes on their income get too high; they may say, "The heck with it" (or something similar). The bottom line is that it is unlikely you will get as much tax revenue as some people predict.***

If increases in taxes on the wealthy are not going to raise as much money as predicted (or needed), why would we do it? If the most important thing is to get more tax revenue so we can reduce the deficit, then we ought to figure out how to use the tax system to raise the most money with the least interference with the economy. Fairness can count some, but if you are really worried about the deficits, efficiency needs to count for more because that is how you raise the most money and reduce the deficit the quickest.

At times, however, at least for some people, it seems that the point is less about raising tax revenue and more about taking money from the rich. For example, back in 2008, Charlie Gibson challenged then-Senator Obama on his proposal to raise the capital gains tax:

"Charles Gibson: Bill Clinton in 1997 signed legislation that dropped the capital gains tax to 20%.
Senator Obama: Right.
Charles Gibson: And George Bush has taken it down to 15%.
Senator Obama: Right.
Charles Gibson: And in each instance, when the rate dropped, revenues from the tax increased. The government took in more money.
Senator Obama: Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness. We saw an article today which showed that the top 50 hedge fund managers made $29 billion last year – $29 billion for 50 individuals. And part of what has happened is that those who are able to work the stock market and amass huge fortunes on capital gains are paying a lower tax rate than their secretaries. That’s not fair. …
Mr. Gibson: But history shows that when you drop the capital gains tax, the revenues go up.
Senator Obama: Well, that might happen or it might not happen. …"****

Which actually fits with President Obama’s comment earlier this year that "I do think at a certain point you’ve made enough money."

For a somewhat similar point, see James Surowiecki’s article in The New Yorker: "Soak the Very, Very Rich". Here are some excerpts:

"[M]ost of the privileged don’t feel all that privileged. Why is that? … [I]n a place like Manhattan, …your money doesn’t go as far. …

… People in the ninety-fifth to the ninety-ninth percentiles of income have represented a fairly constant share of the national income for twenty-five years now. But … the top one per cent has seen its share of national income double …. [A]t the same time that the rich have been pulling away from the middle class, the very rich have been pulling away from the pretty rich, and the very, very rich have been pulling away from the very rich.

… Our system sets the top bracket at three hundred and seventy-five thousand dollars, with a tax rate of thirty-five per cent. …

This makes no sense—there’s a yawning chasm between the professional and the plutocratic classes, and the tax system should reflect that. A better tax system would have more brackets, so that the super-rich pay higher rates. ... This would make the system fairer, since it would reflect the real stratification among high-income earners. A few extra brackets at the top could also bring in tens of billions of dollars in additional revenue. …

The explosion in wealth at the very top of the pyramid has given rise to what the commentator Matt Miller has called a ‘lower upper class’—doctors, lawyers, accountants, even some journalists, who make very good livings but enjoy nothing like the rewards that come to their peers in finance or in the executive suite."

While Mr. Surowiecki claims that "a few extra brackets at the top" could raise tens of billions of dollars, this claim is in the second position. (Note the "also" in the quotation above.) Keeping the super-rich from having as much money seems more important. Overall, Mr. Surowiecki’s article seems to contain a lot of envy of the very, very rich by those who are merely rich.

If the point is mainly to make the rich pay more of their money in taxes, regardless of whether the government actually collects more, I would ask why. Is it envy or is it inequality? If inequality is the concern, is raising income tax rates going to solve the problem? Is inequality just a question of income? Isn’t it wealth, too? Some people think one of the purposes of the estate tax is to reduce inequality by taxing a person’s wealth when he or she dies, thereby limiting one’s ability to pass on his or her wealth.*****

If inequality is the problem, do we need some kind of an annual wealth tax, too? It could be thought of as sort of an upfront estate tax. If, as President Obama told "Joe the plumber," the economy would be better how if the government takes a little extra of Joe’s income and "spreads the wealth around," why not spread around some of the rich people’s wealth, too?

Such an idea would, I think, never be passed in the United States, but it is scary how close the philosophical basis for such a proposal is to Mr. Surowiecki’s article or some of the things President Obama has said. And it is scary because I do not think the moral and philosophical basis of our tax system ought to be either (i) reducing inequality by just taking money away from people who we think have too much enough of it or (ii) one of the seven cardinal sins.

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* In fact, many people, including a large number of Democratic representatives and senators, were so opposed to these tax cuts, that they refused to accept them and calculated their taxes on the basis of the prior tax rates, paying the extra money to the IRS in protest. Oops, I’m sorry. I got confused. They may have complained, but they took the money.

** It is unclear how concept of considering the social security tax as just another tax fits with the Bill Clinton/Al Gore "lockbox" for social security taxes.

*** Democrats often talk about Bill Clinton’s tax increases in 1993 and the prosperity in the 1990s. What they don’t tell you is this: If look at the Dow Jones Industrial Average for first two years of President Clinton’s term, you will see it bounced around from 3241 on January 21, 1993, to 3830 on election day in November of 1994, when the Republicans won both houses of Congress (and as low as 3675 later in November). By the end of 1995, the Dow was 5117. Capital gains taxes were cut in 1997 and by December 31, 1999, the DIJA was at 11,497. (See DIJA numbers here.)

**** The Wall Street Journal, April 18, 2008.

***** While Warren Buffett says he supports the estate tax, as well as raising the capital gains tax, he has shown us how to avoid both of them. With respect to the estate tax, Mr. Buffett is giving the vast majority of his wealth to Bill Gates’ foundation, so his estate won’t be paying much of the tax he wants others to pay. Similarly, Mr. Buffett owns a lot of Berkshire Hathaway stock, a stock that never pays dividends. No tax there. And until Mr. Buffett actually sells shares in Berkshire Hathaway, it doesn’t matter what the capital gains tax rate is because he won’t have any capital gains for the government to tax.

Update (8/16/10 7:58 am):  Fixed a typo in the last footnote.