Thursday, May 12, 2016

Rewriting the Rules of the American Economy

The book was based on a paper written for a think tank. The start feels like filler. It takes a long time to really get going. The initial "problem description" tends to over generalize. It also contradicts some of the arguments given later on. (He mentions that financiers manage to manipulate regulation to their benefit - then he later proposes new regulations to curb their excesses.)

His general thesis is that the difference between the richest and poorest should be minimized primarily through structural changes. Some of the rules that currently favor the rich should be curtailed, while others that benefit lower income workers should be added. He would raise the income tax on capital gains while added a surcharge for assets held for a short time. The step-up basis for inherited assets would also be eliminated. (This would be a fun one to implement - what happens if you don't have the initial purchase records?) To benefit everyone, we would have national sick and family leave policies along with universal healthcare and preschool. If done right, these programs could be beneficial. If done right, these would all be great. However, if done with the hair-brained compromises that come out of our political system, they would be a disaster. The benefits need to be universal, not something that is subsidized or restricted based on income levels. (You see some of the craziness with Obamacare where earning more can cause your insurance costs to increase or availability to change.)

Many of his points appear to be geared at returning the US to a past "glory" of New Deal and post-war industrial worker relations, while adding in modern "equality" for women and minorities. However, what is really needed is new ways of thinking about new ways of working. Giving workers more rights and greater say in unionization is helpful when their is a big company involved. But when people are working directly with each other, the additional overhead stifles the ability to productively contribute. With a service like Uber, there are many people that do spend a few hours of their free time working. The flexibility to work when and where they want without hindrance is a huge benefit. There are also a small number of people that treat it as a full time job, working long periods of time. Conventional unionization would result in everybody becoming Uber employees. This would be fine for the full time workers, but would likely be a huge burden for the "occasional" workers. Adding more regulations would not help these workers. Instead it would just push more people towards a full-time employee-employer relationship. A key advantage of a true "sharing" economy is that it gives labor the mobility that capital currently has. Workers can choose to work or not work when they choose. The key to maximum worker freedom is, paradoxically, to limit the employer benefits. If health care, retirement and other benefits are separate from the employer, workers have the freedom to do the most productive way to work. They may chose the regularity of a 9-5 job. Or, they may chose the freedom of a "sharing" job. The regulation regime needs to allow innovation to take place. (Instead what we often have is regulations to counteract past problems. The slew of regulations are easy for the organizations that previously committed the problems to deal with, but more difficult for new innovators to implement.)

While there are some good points in this book, from a practical perspective, it is useless. The implementation of many of the features of the plan would likely make things worse. (Embedded special interests would use their power to have things implemented in such a way that benefits their position while appearing to help everyone.) Even ideas like improving infrastructure and public transportation have their way of being corrupted. (Will we get the train that is really needed or simply the pork-barrel highway?) Focusing too much on the progressiveness of the tax system can also distort the big picture. Even with a "regressive" tax like sales tax, the wealthy pay more than the poor. Attempts at limiting this create things such as AMT that have managed to impact the middle class more than the wealthy. The rules do need rewriting, but they need to be done right.

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