IF MAN DOESN’T DISAPPOINT YOU…:

The Disappointed Liberal: A recent volume of essays seeks to reconsider, and reclaim, Vilfredo Pareto’s intellectual legacy. : a review of Vilfredo Pareto’s Contributions to Modern Social Theory: A Centennial Appraisal, Christopher Adair-Toteff, ed. (Alberto Mingardi, 3/04/24, City Journal)

Arendt writes of Pareto’s “despair of the working classes,” perhaps not realizing that Pareto sided with them in the struggle against “bourgeois socialism,” which today we might call “crony capitalism.” In fact, in the passage above, Pareto was revealing the disappointment of a true liberal, who understood that liberty was too precious to be entrusted to “liberals,” many of whom pursued their own interests more energetically than the cause of liberty itself. Such people criticize power when it is held by others but deem it perfectly benevolent when they hold it themselves.

In our era of obsessive partisanship, such political skepticism is perhaps hard to understand. Adair-Toteff reminds us that Pareto was “anti-socialist, anti-state intervention, anti-colonialism, anti-militarism, anti-racism, and anti-anti-Semitism.” This series of “antis” may define the man more than any single political label.

…you aren’t paying attention. Likewise, if you don’t forgive us.

WAKEY-WAKEY:

We’ve Been Underestimating Discrimination (Rose Jacobs, February 20, 2024, CBR)

The layered relationship over time between identity and opportunity make up the infrastructure of systemic discrimination, a phenomenon that social scientists have studied since the 1950s and that is increasingly acknowledged across American society, despite resistance from the Right. But in economics, practitioners have traditionally studied only direct discrimination, with projects that have a narrower scope. Take, for example, a study from three Federal Reserve economists—Neil Bhutta, Aurel Hizmo, and Daniel Ringo—that analyzes the extent to which lenders provided differential treatment by race, illegal under US fair-lending laws, in 2018 and 2019. The study establishes a steep decline in racial discrimination in mortgage issuance, as compared with research findings from a study of home loan applications in 1990, which is encouraging. But the researchers in both studies controlled for factors such as applicants’ credit scores and leverage, a standard economic approach but one that drew ridicule from journalist Michael Hobbes, who tweeted, “Yes[,] once you remove the influence of all of the other racist systems, racism doesn’t exist.”

The thinking among economists about how to account for such factors may be changing, however. University of Pennsylvania’s J. Aislinn Bohren, Brown’s Peter Hull, and Chicago Booth’s Alex Imas are among the economists who are proposing new approaches to measuring discrimination that take systemic factors into account. They are looking at the mechanisms by which historical discrimination continues to create unequal outcomes while also acknowledging the limits of economists’ traditional measurement tools and extending the tape measure—rethinking their models so that quantitative data can better illuminate whether the American dream is available to all. The research by Bohren, Hull, and Imas indicates that traditional estimates can undercount discrimination, and not by just a little: they sometimes miss the majority of the total.

TAX WHAT YOU DON’T WANT, NOT WHAT YOU DO:

It’s Time the US Abolished the Income Tax: Bring on the consumption tax. (John H. Cochrane, February 12, 2024, CBR)

Here there is an awkward truth of taxation. Unexpected, “just this once and we’ll never do it again” wealth taxes are economically efficient. The problem of taxation is disincentives. If you announce a wealth tax in the future, people respond by not accumulating wealth. They go on round-the-world private jet tours instead of investing and building companies. But if you tax existing wealth, and nobody knew it was coming, there is no disincentive.

This is, however, one of the most misused propositions in economics. That “just this once and never again” promise isn’t credible: if the government did it once, why not again? And it feels horribly unfair, doesn’t it, grabbing wealth willy-nilly? Unpredictability is not something responsive, rule-of-law democracies can or should do.

In any case, as with corporate income, taxing investment income also makes no sense. You earn money, pay taxes on it, and invest it. If you choose to consume later rather than now, why pay additional tax on it? One of the main don’t-distort-the-economy propositions is that we should give people the full incentive to save by refraining from taxing investment income.

So why do we tax investment income? Again, because once you tax income, you have to start plugging holes. Many people can shift labor income to investment income. If you run a business, don’t take a salary but pay yourself a dividend. If you’re a consultant, incorporate yourself and call it all business income. In the 1980s, even cab drivers incorporated to get lower tax rates.

The income tax is the original sin. Taxing income made no sense on an economic basis. The government only did it because it was easy to measure and grab, at least before people started inventing a century’s worth of clever schemes to redefine “income.” It has led inescapably to more sins, such as the corporate tax and the tax on investment income. And now the repatriation tax on accumulated foreign earnings.

What’s the solution? Well, duh. Tax consumption, not income or wealth. Get the rich down at the Porsche dealer. Leave alone any money reinvested in a company that is employing people and producing products. Now we can do it. And we can then throw out the income tax, corporate tax, and estate tax.