Confessions of a Supply-Side Liberal

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Odious Wealth: The Outrage is Not So Much Over Inequality but All the Dubious Ways the Rich Got Richer

Link to the Column on Quartz

Here is the full text of my 50th Quartz column, "Odious Wealth: The Outrage is Not So Much Over Inequality but All the Dubious Ways the Rich Got Richer," now brought home to supplysideliberal.com. It was first published on June 30, 2014. Links to all my other columns can be found here.

If you want to mirror the content of this post on another site, that is possible for a limited time if you read the legal notice at this link and include both a link to the original Quartz column and the following copyright notice:

© June 30, 2014: Miles Kimball, as first published on Quartz. Used by permission according to a temporary nonexclusive license expiring June 30, 2017. All rights reserved.

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Concern about income inequality, and the even more striking inequality in wealth in the United States, is a key theme for the 2014 US congressional elections and has made Thomas Piketty’s book Capital in the Twenty-First Century a surprise bestseller. There are many reasons to be concerned about wealth inequality itself, regardless of the source of that inequality, but it is hard to pursue a discussion on the topic for long before someone makes a claim about whether the wealthy acquired their money in a deserving way. Partisans on the political left and right know which side of this argument they are supposed to emphasize: many who feel the government needs more revenue conveniently argue as if almost all wealth comes from underhanded, unscrupulous skullduggery, while many who feel the government needs less revenue conveniently argue as if almost all wealth were created by the likes of Steve Jobs, who brought us i-everything. But unlike these partisan stories, in every list of 1,500 or so billionaires, many deserve their wealth while others deserve very little of the wealth they have. While in some cases the principles for whether wealth is deserved or not are obvious, in other cases they are quite subtle.

To start with an easy category, wealth obtained by deceit is illegitimate. For example, given the way tobacco companies lied about the dangers of smoking,the gigantic legal judgments against them seem appropriate (though it is too bad how big a share of that money went into the pockets of lawyers). And although the magnitude of the crime might not be as great, GM’s recently outed behavior inhiding problems with ignition switches has a disturbing resonance with the earlier behavior of the tobacco companies. As these examples make clear, standard legal principles often make it possible to take away wealth obtained by deceit once that deceit is well established. But a greater hatred of deceit on the part of juries, judges, and legislators would help in further neutralizing this form of wealth.

If undeserved wealth always arose in cases where the logic was as simple as that for deceit, and were similarly reprehensible from a criminal or civil law point of view, then the issue of undeserved wealth could be appropriately handled in the courts.In an IMF paper, Harvard Economics professor Michael Kremer and Northwestern University Economics professor Seema Jayachandran make the intriguing proposal that debt incurred by a non-democratic government (after the appropriate international organization has declared that the debt is not in the interests of the people of a country) should be considered “odious debt” that later (and hopefully better) governments of that country need not pay back.

We could similarly talk about “odious wealth”—wealth that is hateful in its origin. But our instincts about the merits of different means of acquiring wealth often go astray. Let me take two extreme examples: old songs that people love and the kind of “vulture capitalism” whose reputation helped sink Mitt Romney’s chances in the 2012 presidential election.

There is currently a dispute over whether songs recorded before 1972 should continue to earn royalties. By naming their bill to extend royalties to pre-1972 recordings the “Respecting Senior Performers as Essential Cultural Treasures Act or “RESPECT” Act, congressmen George Holdings and John Coyners are using the fact that the musicians who recorded songs before 1972 (that we still listen to 42 years later) inspire feelings of gratitude, since songs of lasting popularity give many listeners much more pleasure than those listeners have paid for the right to listen to those songs. But the prospect of that very gratitude, plus 42 years of royalties, would have provided more than enough motivation for musicians to work hard back in 1971 to make great songs, if they had the ability.

Forty-two years is a long time. And money coming in the near future looks (and is) more valuable than money coming in the more distant future. And even songs that last typically get more play in their early years. So at the time a musician is working hard on a song, the prospect of 42 years of royalties and undying fame should, to a surprisingly close approximation, be just as motivating as, say, 80 years of royalties and undying fame. So we don’t need to extend royalties to pre-1972 recordings to bolster the confidence of musicians making songs now that they will be properly rewarded for their efforts. And on the downside, charging royalties for pre-1972 songs has the potential to inhibit the development of internet and satellite radio—and in particular how often people get to listen to the best pre-1972 songs on internet and satellite radio. So there is a lot of  of downside, not much upside to extending royalties to pre-1972 recordings. But the folks who would earn those royalties, if they are still alive, are attractive recipients of the money, even in cases where they are relatively wealthy.

By contrast, few ways of getting wealth seem less attractive than acquiring companies and then making them more profitable by laying off many of the employees. In August 29, 2012, Matt Taibbi wrote in the Rolling Stone essay “Greed and debt: the true story of Mitt Romney and Bain Capital:”

A man makes a $250 million fortune loading up companies with debt and then extracting million-dollar fees from those same companies, in exchange for the generous service of telling them who needs to be fired in order to finance the debt payments he saddled them with in the first place. …

Instead of building new companies from the ground up, we took out massive bank loans and used them to acquire existing firms, liquidating every asset in sight and leaving the target companies holding the note.

This is what I am calling “vulture capitalism.” But vultures have an important place in the ecosystem. Just like literal vultures, who help clear away dead carcasses, vulture capitalists help in the difficult process of moving workers from making and doing things that people don’t need as much anymore to making and doing things that people are eager to pay for. For example, Mitt Romney helped unwind K-B Toys, whose toys could no longer compete with video games. This was enormously painful for the employees of K-B Toys, who were ultimately sent on their way in an arduous transition to new jobs (and some to early retirement). But an enormous amount of good work has been accomplished by former employees of K-B Toys in new jobs with efforts that would have been squandered on trying to make unwanted toys if K-B Toys had been kept limping along for a few more years.

Since they are unlikely to get much gratitude from their brutal but useful work, vulture capitalists have to be rewarded with money. Otherwise, who would want to do that task of dismantling companies and letting go of people and other resources that should be devoted to other purposes?

None of this is to say that the incentives for vulture capitalism are precisely right. It is unfortunate when, as is too often the case, the efforts of highly trained professionals are focused on transactions that make sense only because of quirks of the tax law. But the basic idea that the old must sometimes be dismantled to provide the human and non-human building blocks for new things is sound. And if something that painful is going to happen, it sometimes makes sense to say as Jesus said to Judas: “What you are about to do, do quickly.” The wealth earned by vulture capitalists may then look like the 30 pieces of silver Judas was given for betraying Jesus, but it must be considered legitimate, nonetheless, because the job needs to be done.

There are two points to take away. First, it is not right to treat all large fortunes as odious wealth (or as otherwise illegitimate in origin) or to treat all large fortunes as beneficent wealth. Second, without careful analysis, our instincts will often lead us astray about which is which.

Although people complain a lot about wealth and income inequality, I suspect that a great deal of that anger comes from how the rich made their fortunes. An ideal version of capitalism—the version in the economic models taught in introductory economics classes around the world—would make it impossible to get rich without doing great good for society. There are certainly areas where doing great good for society is not understood and therefore not appreciated. But there are also many areas where the wrong things are rewarded because of market distortions, or where the government piles on rewards beyond those that are needed.

Among market distortions, lies and deception are a key category. But it is also a problem that the legal remedies available to deal with lies and deception are not matched by any ability to bring a legal tort claim for, say, raising the planet’s temperature by burning coal.

Among excessive rewards caused by the government, bailouts without increases in equity requirements big enough to prevent future bailouts are especially unfair. But actions by the government to protect the profits and business models of firms already in place by standing in the way of firms doing new things in new ways  can in the long run be just as damaging.  And in the digital age, copyright law is longoverdue for reevaluation.

Wealth and income inequality are a topic of perennial fascination. But the heat has been turned up not only by increases in such inequality, but also by the feeling that the 2008 financial crisis and the Great Recession suggest that something is fundamentally wrong with our economic system. Among the many reasons to redesign the monetary plumbing of our economic system to avoid a repeat of the Great Recession, one of the most important is to help us gain clarity on the many long-run issues we face, of which economic inequality is one of the most difficult to deal with.

Filed under fullcolumns longrunfiscal

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In the 20th century, the development of bureaucracy had increased the potential power of the nation state enough that the Keynesian situations caused by the disabling of short-run monetary policy inherent in the gold standard made Fascism, Socialism and other variations on the theme of central planning look attractive to those who didn’t realize where it would lead.
Miles Kimball

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Virginia Postrel: Libertarian or Supply-Side Liberal?

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Image from Virginia Postrel’s Twitter Homepage

As an admirer of well-written nonfiction books and their authors, Virginia Postrel is someone who was famous to me before I ever started blogging. So I was delighted to have some interactions with her since I started blogging, especially on Twitter. One of the first interactions was when  she said in the comments to Tyler Cowen’s post, "Reminiscences of Miles Kimball, and others" (near the bottom) that she wondered if I was dead, since as she later tweeted to me, Tyler’s post sounded a bit like an obituary.

It was nice to have Virginia say in that exchange she was glad I was not dead, but I was even more pleased to see her review-in-a-tweet of my post "Safe, Legal, Rare and Early." She tweeted:

Safe, Legal, Rare and Early: Thoughtful & true post on abortion by

I am on the waiting list at the library for her latest book, The Power of Glamour, about which Tyler Cowen says:

Her best and most compelling book. It is wonderfully researched, very well written, the topic is understudied yet of universal import, and the accompanying visuals are striking.

Wikipedia currently says that Virginia “is an American political and cultural writer of broadly libertarian, or classical liberal, views.” But I am wondering if maybe she is at heart a Supply-Side Liberal

On cultural issues, the dominant thread on this blog so far has been it focus on John Stuart Mill’s On Liberty. (I give the links to relevant posts in "John Stuart Mill’s Brief for Freedom of Speech" and "John Stuart Mill’s Brief for Individuality.") But there are also many other posts on my Religion, Humanities and Science sub-blog (linked at my sidebar) that address cultural issues. 

By the way, I discussed the relationship between my own views and Libertarianism a bit in my "Libertarianism, a US Sovereign Wealth Fund, and I."

Filed under reviews

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Marjorie Drysdale: Even When You Can Do Math, You May Not Love It

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Marjorie Balgooyen Drysdale is a classical soprano, music teacher, conductor, and the author of the book Tagalong Kid.

Not all of the emails Noah Smith and I received in response to our column “There’s One Key Difference Between Kids Who Excel at Math and Those Who Don’t" agreed with us. Some people said they had tried as hard as they could and still couldn’t do math. In a few cases, genuine dyscalculia might be at issue. But more often, I suspect the problem is with the quality of the math teaching. Elizabeth Green had a fascinating New York Times article "Why Do Americans Stink at Math?" a few days ago that pointed the finger squarely at the lack of adequate instruction for math teachers in how to teach math. 

Marjorie Drysdale, who received a Master’s degree in Music from the University of Michigan, graciously agreed to share this email she made in response to Noah’s and my column. In addition to the issue of how math is taught, and where one is at when the math is taught, she points out that just because you can do something doesn’t mean you will love it. I agree. There are always tradeoffs in life, and time spent doing math is time away from doing something else that you may love more—maybe a lot more. But at least if you know how to do math, you can make the choice. And if math is taught well, what you learn will have some value for your life. 

Dear Miles and Noah,

Regarding your essay, There’s one key difference between kids who excel at math and those who don’t,” I have to disagree with your assertion that “For high school math, inborn talent is just much less important than hard work, preparation, and self-confidence.”

I was an excellent high school student.  I worked hard, prepared, and was self-confident.  I always made the high honor roll.  I graduated 2nd in my class.

 I went on to a competitive college and graduated with highest honors, phi beta kappa.  I had two majors.  I was always on the Dean’s List.

I went on to get a master’s degree and graduated with honors there, too.  I became a professional musician.  Supposedly, math and music go together.  Not with me.

After geometry, I simply “didn’t get it.”  I took one more year of math—-a course which, in the 60’s, was called “fusion.”  It was a combination of trigonometry and advanced geometry.  That did me in.  Until then, I had always earned A’s in math.  I barely passed “fusion.”

It might have made a difference that I had skipped a grade and then was put into the “honors group”—-an accelerated class. (In those days, classes were “tracked.”)   In that class, we were taking courses a year ahead of our peers.  Therefore, I was taking courses two years ahead of my peers.  Perhaps I simply had a “readiness” problem. 

I “hit a wall” and never went back to math. It had nothing to do with lack of effort, believe me. 

Oddly, when I took my GRE exams after college and two years of work, my verbal and math scores were both in the 700’s.  This truly surprised me.  I hadn’t taken a math course in seven years.

I think that “readiness” in my case was more of a determining factor than “hard work.”

As I grew older, I understood it better, but I still didn’t like it.  There are people who adore math.  They light up about it.  They enjoy it from the get-go.  Therefore, I do think there is an innate element to these differences.  Some people love math; others don’t.

I adore classical music.  Most people couldn’t care less about it.  The first time I heard it, I was hooked.  That had nothing to do with hard work, either.  Succeeding in it  required hard work, of course, but the love came first.

Filed under education

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Kate Owino: Kenyan Women Can Love Math Too

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Image from Kate Owino’s Google+ page

I have been thinking more about the issues Noah Smith and I raised in our column “There’s One Key Difference Between Kids Who Excel at Math and Those Who Don’t.” So I asked permission to publish a few more of the comments Noah and I received by email. Here is a note I liked from Kate Owino:

I’d like to thank Quartz and Profs. Kimball and Smith for the wonderful article on math capabilities in kids released on October 27th, 2013. Reading it reminded me of my personal relationship with mathematics, as a subject and as a life/job-related skill.

I was born and raised in Kenya, and here the attitude toward math takes on a sexist connotation in favor of male students. It’s rare to hear of a female student saying that she excelled in math not only for the sake of passing the exams and getting into a good school or university, but also because she LOVES the subject.

From my personal experience, I was one of a handful of students in secondary school who fell in the latter category. This has proved (to date) to be a slight challenge whenever the topic of attitude towards math arises in a discussion with my female friends - they talk about how poorly they performed especially in secondary school, to the point where it comes across like they’re actually proud of the grades they got (Cs and below). I cannot contribute to the self-mockery because I got As all the way to my final exam…and the same applies to Chemistry.

Reading about the criticism-to-work-harder approach employed by students in China reminded me of my mother’s toughness towards my performance in math. From the age of 8 she would literally slap my wrists if I worked sloppily at a sum, and it was worsened by my teachers’ constant comments in my report book about my propensity to make careless mistakes.

As I look back now I cannot help but be proud of my love for math (and the sciences in general), even though I ended up pursuing a different academic path - studied literature in my undergraduate, and currently work in web content management. I hope to find a way to help do away with that sexist attitude in schools in my country especially since, as it was indicated in the article, poor attitude toward math makes many people lose out on critical life skills and lucrative career paths.

Thanks once again for the wonderful article. Have a wonderful week!

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Image from Kate Owino’s Twitter homepage.

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Noah Smith: Why Do Americans Like Jews and Dislike Mormons?

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I am delighted to host another guest religion post by Noah Smith. Don’t miss Noah’s other religion posts on supplysideliberal.com:

  1. God and SuperGod 
  2. You Are Already in the Afterlife
  3. Go Ahead and Believe in God
  4. Mom in Hell
  5. Buddha Was Wrong About Desire
  6. Noah Smith: Judaism Needs to Get Off the Shtetl

Here is Noah:

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The Pew Research Center recently did an interesting survey asking Americans how they felt about various religious groups.Here are the findings in a single table, shown above.

was actually surprised by the low numbers across the board - there was almost no category in which more than 70% of people of one religion felt warmly toward people of another religion. But I wouldn’t put too much stock in that, actually - answers to these surveys usually tend to change a lot depending on how you phrase the question. The relative ratings are more interesting. Some of the findings are easily explained—the low ratings given to Muslims, for example are obviously an unfortunate result of the current political troubles with jihadist terrorist groups. But other findings are more surprising and intriguing. Here are some thoughts I had, looking at the numbers. 

Why do Americans like Jews?

As many have noticed, Jews received the most positive ratings of any religious group in America. This confirms that American society is not in any meaningful way anti-Semitic, which is good news. But why do people like Jews so much? 

Hypothesis 1: Nobody knows what Jews even are. When I was in high school in a medium-sized Texas town, another kid asked me about my religion. He asked: “Are you…Hanukkah?” So maybe people just have no idea what Judaism is, and figure it must be a minor thing that is no threat to their own faith. 

Hypothesis 2: Jews are no threat. Jewish culture has a strong stigma against proselytization. I’ve criticized that insularity, but maybe it’s paying dividends. People don’t like threats - that’s why Japan and Germany are such popular countries these days. Judaism is not going to knock on your door and ask you if you’ve heard about Yahweh. 

Hypothesis 3: The entertainment industry. There are lots of Jewish actors, comedians, etc. If you ask the average American to name someone Jewish, she’ll probably think of a funny guy like Jerry Seinfeld or a cute girl like Natalie Portman, or maybe a musician like Bob Dylan. If people knew that Drake, Scarlett Johansson, and James Franco were Jewish, they’d probably like us even more! 

In addition, the two main drivers of anti-Semitism—European conspiracy theories and Muslim anger about Palestine—are both notably absent in America.

Why don’t Americans like Mormons more?

Mormons get middling low ratings in the poll. I guess this shouldn’t be surprising, given the prevalence of anti-Mormon discrimination in America. But what is the cause of the discrimination? David Smith, a political scientist at the University of Sydney (and no relation to Yours Truly, though we have clinked a few glasses over the years), finds that many Americans consider Mormons as an “outsider” group, which is strange considering that Mormonism is the only major religion to begin on American soil. Why do people see Mormons as outsiders?

Hypothesis 1: Proselytizing. One possibility is that the rapid spread of Mormonism poses a threat to other, more established religions. In this respect, Mormonism is the polar opposite of Judaism—every Mormon man must go out and convert people. That’s threatening, no matter how politely it’s done.  

Hypothesis 2: The perception of secrecy. There is a perception of secrecy and exclusivity surrounding Mormonism. Anyone can go participate in any Jewish prayer service. But not even all Mormons can enter “dedicated" Mormon temples! Some Mormon weddings exclude non-Mormons. And there’s a perception that many other aspects of the religion are secret. Secrecy seems alien, and exclusivity is suspicious.

I think anti-Mormonism is a bad thing, but I don’t know how to combat it.

Why don’t Jews like Evangelicals?

One interesting finding from the poll is that although 69% of Evangelical Christians expressed positive feelings toward Jews (one of the highest ratings given), only 28% of Jews expressed positive feelings toward Evangelical Christians (one of the lowest ratings given). This is weird, since Evangelical Christian sects - unlike, say, the Catholic Church - have no history of anti-Semitism or persecution of Jews. Also, the asymmetry itself is strange. Why don’t Jews like Evangelicals more?

What’s going on? 

Hypothesis 1: Instinctive fear of dominant religion. Jews in Europe and the Mideast had a long history of being persecuted by whatever the dominant religious sect in the area happened to be - the Catholic Church, Islam, or the Eastern Orthodox Church. Jewish culture may have simply inherited an instinctive distrust of whatever the most powerful religious group seems to be. 

Hypothesis 2: Politics. American Jews are generally liberal, while Evangelicals are generally conservative. In America, politics is often a stronger religion than actual religion. In addition, some Jews may be afraid that Evangelicals only like them because of a millenarian desire to see Israel recreated and then destroyed (in accordance with Biblical prophecy), or perhaps a cynical desire to use Israelis as expendable shock troops against the Muslims. This is probably not a motivating factor for most Evangelicals, but it does get some play in the media.

Hypothesis 3: Anxiety about the end of Judaism. Non-Orthodox Judaism is a dying religion. In America (and Britain), Jews are marrying non-Jews and ditching their ancestral religion at an astounding rate. It turns out that integration and assimilation destroys Judaism, while pogroms, ostracism, and oppression keep it going (someone might have bothered to mention this to Hitler!). Many Jews are naturally anxious about the end of their distinctive culture, and may tend to displace this anxiety by feeling bad about America’s “dominant” religion - Evangelical Christianity.

I think this attitude is a bad one. Evangelical Christianity is far more pro-Jewish than any other branch of Christianity has ever been. Furthermore, Evangelical Christianity has been an important factor in the creation of American society, the most philo-Semitic Western society in history. Jews should have a more positive view of Evangelicals.

Filed under religionhumanitiesscience

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Von Günter Heismann in the Süddeutsche Zeitung: Economists Ken Rogoff and Miles Kimball Want to Abolish Cash

I made it into the German press for wanting to demote—not abolish—cash, along with Ken Rogoff, who does indeed want to get rid of cash. (i wrote about Ken Rogoff’s views here.Google Translate works fine on this article. Thanks to Rudi Bachmann for letting me know about this article. 

See what I have to say about breaking through the zero lower bound with electronic money in "How and Why to Eliminate the Zero Lower Bound: A Reader’s Guide." The article in the Süddeutsche Zeitung should have mentioned that I visited the European Central Bank and three of its associated national banks (France, Germany and Italy) to talk about how to keep paper currency from creating a zero lower bound. 

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