Buffett: Tax the Rich

[lomiller]

Well you read the words, but clearly you don't understand investment analysis.

Allow me to create a simplistic example that will avoid the complex notation and discussion of probability distributions. Imagine an investment where there is (a priori) a 42% probability of complete loss of investment and a 58% probability of doubling the investment. It *sounds* great but ....

Case 1/ Pretax.
For every dollar invested there is a 42% chance of losing $1, and a 58% chance of gaining $1. Therefore the expectation value of the return on the investment is
0.42*(-1) + 0.58*(+1) = 0.16. You expect a 16% return on average, before considering tax. Fabulous return.

Case 2/ 15% CG rate on gains
If a 15% LTCG rate applies then the return applies, that the expectation value (I'm ignoring the loss tax reduction, will discuss later) then the expectation value of return is
0.42*(-1) + 0.58*(+1)*0.85 = 0.073 or 7.3%. Still a decent return.

Case 3/ 35% CG rate on gains.
If a 35% tax rate applies then ... 0.42*(-1) + 0.58*(+1)*0.65 = -0.043, a 4.3% percent loss !! No one in this tax rate would touch this investment. It needs to at least exceed other safer investments. It's a clear loser.

Capital losses can be carried forward for 2 years and in most cases you can defer taking the loss for much longer. While there may be corner cases where it’s a little off the best approximation is to apply the capital gains to calculate your net return then apply the capital gains tax.

Is wrong, but we must consider tax treatement of the losses.

Above you completely ignored losses and calculated return based on the taxing only positive returns. Since you knew this was wrong I have to ask why If you knew it was completely off base and wrong why did you bother writing it?

 

[DC]

And on what level Friedman was wrong?
And when Keynes was right because its seems his ideas never worked?

Friedman had some good ideas, but he took it to an extreme, and that is never good. He was an extremist.

 

[cesarz]

Yes when and where they working?

Please support it with any links or data

http://www.aei.org/article/102443

"A 2002 study by economists Richard Hemming, Selma Mahfouz and Axel Schimmelpfennig of recessions in 27 developed economies from 1971 to 1998 found that increased spending by government had, in almost all cases, a barely noticeable impact, and sometimes a negative one. Heavily indebted countries that spent more in recessions grew about 0.5 percent less, relative to trend, than countries that didn't, the study found."

And as for Friedman there are so many countries that are developing very fast thanks to his ideas (of course he was not always right).


And as for your book, five seconds and i find critice:

http://political-economy.com/zombie-economics-review/


EDIT sorry I added the same pst two times

 

[lomiller]

i think this is based on faulty friedmanism

Just to be clear it’s not Friedman who’s ideas were faulty nor do Friedman’s ideas contradict Keynes. Just the opposite in fact Friedman was working from a Keynesian base, he extended Keynesian economics he didn’t replace it.
IMO today the real discussion between economists is more about when to apply what, rather than saying either of these two were wrong.

 

[lomiller]

Yes when and where they working?

Please support it with any links or data

http://www.aei.org/article/102443

If we are to accept commentary from the American Enterprise Institute as evidence, then we should also accept commentary from UFO today as evidence for the existence of UFO’s. They exist to promote a specific ideology regardless of what appears in actual economics journals and can’t be considered a valid authoritative source.

 

[cesarz]

Also Leszek Balcerowicz says the same - and his not economical idiot much the opposite looking at progress that my country made thanks to his reforms.

 

[Toke]

And as for your book, five seconds and i find critice:

http://political-economy.com/zombie-economics-review/

You find critique from someone who call the austrian school of economic great economists.
To me that is a good indication that the book is correct in it's conclusions.

 

[cesarz]

You find critique from someone who call the austrian school of economic great economists.
To me that is a good indication that the book is correct in it's conclusions.

Well he had his points with you dint disprove?

Another critique:

http://newmonetarism.blogspot.com/2011/08/john-quiggin.html

 

[daenku32]

Yes when and where they working?

Please support it with any links or data

http://www.aei.org/article/102443

"A 2002 study by economists Richard Hemming, Selma Mahfouz and Axel Schimmelpfennig of recessions in 27 developed economies from 1971 to 1998 found that increased spending by government had, in almost all cases, a barely noticeable impact, and sometimes a negative one. Heavily indebted countries that spent more in recessions grew about 0.5 percent less, relative to trend, than countries that didn't, the study found."

Apparently that is often used 'quote'. Quite useful on the surface. However...

http://www.econbrowser.com/archives/2010/08/kevin_dow_36000.html

Fiscal policy is Keynesian during recessions in closed economies, but the fiscal multiplier is quite small (i.e., it is unlikely to exceed unity).

...

However, these conclusions do not preclude the possibility that, where the circumstances are right, fiscal expansions can be an effective response to a recession. The right circumstances would feature some or all of: excess capacity; a closed economy or an open economy with a fixed exchange rate; big government; expenditure-based fiscal policy; and an accompanying monetary expansion.

And, as this writer puts it (with graphs and data), is that Keynesian spending did work.

 

[Mycroft]

Sure, the US deficit is high but the interest on it is close to zero so it is not a significant problem to maintain payments. Actually the low interest makes this a great time to catch up on decades of crumbling infrastructure.

But the interest on the debt won't always be zero.

 

[daenku32]

But the interest on the debt won't always be zero.

You wouldn't want to start infrastructure project when they are high. At low rates is exactly when investment makes sense. That goes for government projects as well.

 

[lomiller]

Well he had his points with you dint disprove?

Another critique:

http://newmonetarism.blogspot.com/2011/08/john-quiggin.html

What I suggest you do is take some of his opinions voiced on this blog that you agree with and believe you can support and post them here along with your supporting evidence.

 

[daenku32]

Well he had his points with you dint disprove?

Another critique:

http://newmonetarism.blogspot.com/2011/08/john-quiggin.html

A response to the critique.

http://noahpinionblog.blogspot.com/2011/08/in-which-john-quiggin-intellectually.html

My favorite quote:

Yes, Stephen Williamson defended a theory by saying that it can't make any predictions about the real world. You read that right.

 

[cesarz]

Supporting evidence are countries like Japan (failed stimulus) Poland (succesful cut in goverment spending).

So please provide me with any countr arguments?

 

[cesarz]

A response to the critique.

http://noahpinionblog.blogspot.com/2011/08/in-which-john-quiggin-intellectually.html

This what i wanted Thanks - i see valid points againts critiques i posted.

 

[cesarz]

Any comment on this though:

"John Quiggin in an Australian economist. He made his name in the early 1980s in an esoteric area called decision theory. The Econometrics Society made him a fellow on the basis of this work, a distinguished award. He writes a blog, which has many devoted followers. The book is primarily about macroeconomics, however, which is not his area. Asking Quiggin about macroeconomics is like going to a podiatrist for your headache: it's the wrong end of the body.

The chapter on Dynamic Stochastic General Equilibrium modeling (DSG modeling) is a good example of Quiggin's lack of expertise about modern macroeconomics. He states that one of the oddities about DSG modeling is the representative agent paradigm. This is an abstraction where the decision making of one representative consumer/worker is taken as a stand-in for the millions of people living in an actual economy. This abstraction was employed in a famous 1982 article by Kydland and Prescott. Finn I. Kydland and Edward C. Prescott justly won the Noble prize in 2004. The stand-in consumer was abandoned in 1994 in important work by the late and great economist S. Rao Aiyagari. Every graduate student in macroeconomics today knows the Aiyagari paradigm. This work is not mentioned in Quiggin. Nor is the celebrated work by Mortensen and Pissarides, done during the late 1980s and early 1990s, on modeling unemployment. Dale T. Mortensen and Christopher A. Pissarides won the 2011 Noble prize for Economics. There has been a flurry of work in macroeconomics embedding the Mortensen and Pissarides framework of unemployment into an Aiyagari/Kydland/Prescott style DSG model. An early example is the research by David Andolfatto in 1996. Interestingly, Noble Prize winner Paul R. Krugman's latest research with Gauti B. Eggertsson borrows from Aiyagari (they cite it) and is essentially a dynamic general equilibrium model, albeit with a very Keynesian flavor. Quiggin is really out of touch with modern economics.

The trouble with Quiggin's book is that to the non-economist his little bit of knowledge will sound authoritative. Like an undergraduate's essay, many of the bits and pieces are indeed correct. But, also like many undergraduate essays, it shows little understanding about modern macroeconomic, just a superficial dropping of names and theories. Beloved Albert Einstein, a hero for scientists, didn't like quantum mechanics and argued against it. Perhaps it was because of the escalation of the mathematics required to understand the quantum world. Some people say that Einstein wasn't good at math. The mathematics in his papers is easy for a modern economist or physicist to understand--look them up on the web. Time has advanced mathematical training among scientists. Anyway, this was one battle Einstein lost. When Keynesians displaced the classical economists in the 1940s, 1950s and 1960s the latter cried out about the mathematics (calculus and statistics) the former used. Keynesians, such as the Noble prize winners John R. Hicks, Lawrence R. Klein and Paul A. Samuelson, were at the forefront of technique in their day. And now it is the displaced Keynesian crying about the new math (dynamic programming, numerical analysis, stochastic processes) used by the neoclassical economists ushered in by the Kydland and Prescott revolution. Maybe the table will be reversed tomorrow. Who knows: if you could forecast this you could be a Noble Prize winner. This is the process of science: New ideas don't come easily and old ones are hard to displace. Professor Quiggin: You sound like an old man whining about the young Turks.
3:21 PM"

?

 

[lomiller]

Apparently that is often used 'quote'. Quite useful on the surface. However...

http://www.econbrowser.com/archives/2010/08/kevin_dow_36000.html



And, as this writer puts it (with graphs and data), is that Keynesian spending did work.

The way I tend to view it is that in most cases monetary policy is the most effective tool and is therefore normally all you need to use when you entered a recession. There are some cases where normal monetary policy measures may not work and you are forced to fall back to the less effective fiscal measures.

The ironic thing IMO is the most notable proponent in recent years of “we can still do it via monetary policy and fiscal policy isn’t really necessary” has been Ben Bernanke and these opponents of using fiscal policy also object to using the monetary measures he endorses. In other words they reject both Keynes and Friedman in favour of fringe (to put it mildly) Austrian thinking.

 

[daenku32]

The way I tend to view it is that in most cases monetary policy is the most effective tool and is therefore normally all you need to use when you entered a recession. There are some cases where normal monetary policy measures may not work and you are forced to fall back to the less effective fiscal measures.

The ironic thing IMO is the most notable proponent in recent years of “we can still do it via monetary policy and fiscal policy isn’t really necessary” has been Ben Bernanke and these opponents of using fiscal policy also object to using the monetary measures he endorses. In other words they reject both Keynes and Friedman in favour of fringe (to put it mildly) Austrian thinking.

When I took my Intro to Macro (3 credits) pretty much all it was was monetarism and some Keynesian thrown in (it was a Mankiw book). Not much in it that had anything to do with what the Austrian thinking promotes.

In short, I agree with a lot of what you posted. Especially the 2nd paragraph.

 

[TubbaBlubba]

The way I tend to view it is that in most cases monetary policy is the most effective tool and is therefore normally all you need to use when you entered a recession. There are some cases where normal monetary policy measures may not work and you are forced to fall back to the less effective fiscal measures.

The ironic thing IMO is the most notable proponent in recent years of “we can still do it via monetary policy and fiscal policy isn’t really necessary” has been Ben Bernanke and these opponents of using fiscal policy also object to using the monetary measures he endorses. In other words they reject both Keynes and Friedman in favour of fringe (to put it mildly) Austrian thinking.

The problem seems to be, to me, that effective policies are not always popular among voters, or even peers.

 

[cesarz]

I found interview with Balcerowicz where he talks about Keynes, Hayek, Friedman.

I found it interesting especially considering his status here in Poland and what he did for our transformation.

"LESZEK BALCEROWICZ: Well, through intermediaries like journalists, like economists, I would say that Keynesian ideas have completely no application for solving the problems of socialism, because socialist problems are structural. And Hayek's ideas or Friedman's ideas, but especially Hayek's and [Ludwig] von Mises's, they were right. But when they put them forward in the '20s, in the '30s, they are being criticized by the mainstream of Western economists who then thought that Hayek was wrong, that socialists can be economically superior to a free market economy.

And I must say that when I graduated from what was called the Center of Planning and Statistics, only then I read this story, or what was called then the socialist efficiency debate calculation. I was struck by the level of absurdities as propagated by top-level Western economists, even in the '50s, in the '60s, because they constructed models which were very elegant. But they have only one weakness. They have assumed away all the complications of the real world and with this simplified model, they have declared a victory of socialism over capitalism. So since I studied the socialist economic system and knew that it was basically flawed because it deprived people of economic freedom, which is one of the other fundamental freedoms, private property, the right to set up enterprise, I was really very, very surprised that in the West, most of the economists, who were technically very good, could propagate such absurdities for such a long time.

And against this background, people like Hayek or von Mises or then Friedman, but especially Hayek and von Mises, came to me as people who were not mistaken, who could recognize problems early on before they really emerged. And there were some other people, like for example, a Lithuanian economist who wrote in the early '20s. He has pointed out all the problems which actually appeared in the real life of socialism. So there were economists and economists, and much of the economics profession was wrong in the West."

http://www.pbs.org/wgbh/commandingheights/shared/minitext/int_leszekbalcerowicz.html

So i guess theres no one view among economics who was right like some of you would like to show.