Thursday, October 27, 2016

It was 30 years ago today

Today is the thirtieth anniversary of the 1986 World Series, Game 7, when the Mets defeated the Red Sox to complete their miraculous comeback.

I had suffered, then rejoiced, during the end of game 6, via a TV at the foot of the bed where I was staying with friends during a visit to NYC.  (I still lived in Washington, where I was working for the Joint Committee on Taxation. The Tax Reform Act of 1986 had been enacted just days previously, and I was out on the road explaining the parts I had worked on to various tax lawyer groups.)

During the climactic moments of Game 6, I had kept turning the TV off then on again and muttering to myself.  I meant to turn it off for good at the very moment the Mets lost (as they were down two runs, with two outs and no one on base, in the bottom of the tenth inning). As the rally proceeded, I moved slowly backwards towards the pillow end of the bed, and the tenor of my muttering started to change.

My now-wife was with me, trying to sleep (so I was trying to keep the muttering as low as possible).  I told her afterwards that she had now seen the very worst of me; there were no more secrets to worry about.

But on to game 7, the one that is 30 years ago today.  She must have gone to see her family, as I was in an NYC hotel room, hosting several friends from college and/or law school who had dropped by to see the game.  We went through anxious moments early on, as Ron Darling faltered and Bruce Hurst was mowing the Mets down for the third time in just over a week.  But when Keith Hernandex doubled to narrow the score to 3-2, we knew what was going to happen.  (I think the Red Sox knew at that point, too.)

Tuesday, October 25, 2016

Colloquium on high-end inequality

Yesterday was the first day of the seven-week Colloquium on High-End Inequality that I am co-leading with Robert Frank.  Afternoon sessions, from 4;10 to 6 pm in Vanderbilt 202, are open to the public.

Our first session was devoted to several of Bob's short pieces, including one on the importance of luck, another on expenditure cascades, and a third on winner-take-all markets.  The following is a fleshed-out version of my main comments:

2 discussion topics today: the relevance of luck, what if anything is wrong with high-end inequality.

1. Luck
Obviously, luck matters in life. Everyone knows that.  So why, in relation to thinking about high-end inequality, is it particularly worth mentioning?

Because of the alternative view – which, here, is not that everything was predetermined or inevitable, but that all success is just flat-out deserved, period.

3 examples from the papers: Bob survived a dangerous heart attack, Mike Edwards of ELO was buried by a hay bale, Michael Lewis happened to sit next to a Salomon Brothers spouse, who gave him the idea to write Liars Poker, and launch his amazingly successful career.

The first two counterfactuals, but for the luck, are indisputable.  Bob wouldn’t have lived, Mike Edwards wouldn’t have died.  And there’s no particular policy payoff to them, apart perhaps from promoting emergency treatment and road safety.

But for Michael Lewis, some might say: C’mon, he was Michael Lewis. He had extraordinary talents. Surely he was bound to succeed anyway.

Now, that may or may not be true.  We don’t get to run a thousand simulations in which we see how many times he becomes “Michael Lewis.”  But suppose that he wouldn’t have comparably succeeded in many or most of those simulations, even if he never got a heart attack or was buried by a hay bale. What would we learn?

Maybe it’s just attitudinal. Even if you’re highly successful, you should retain proper humility and compassion.

My own answer is that the role of luck, which Bob highlights in his papers, doesn’t matter all that much substantively to how we should think about high-end inequality.  But it might matter not just attitudinally in people’s private thoughts, but also rhetorically in public policy debate.

I think it matters rhetorically due to what I’d call the ideology around meritocracy.  We live in a society where everyone who’s successful claims to have earned it. It’s not just Donald Trump pretending that he didn’t get $14 million from his dad. It’s all kinds of people who were born on third base and believe they hit a triple.

Meritocracy becomes toxic when it divides the world into deserving “winners” and stupid, pathetic “losers,” and that’s where I think our culture often is these days.

Correcting attitudes become all the more important when we have winner-take-all markets.  One person makes a billion & the second makes nothing. Even if the winner was a hair “better,” not just a hair luckier or five seconds earlier, the discontinuity between relative merit and relative reward is well worth keeping in mind.

But suppose all market outcomes were fixed given people’s genetic endowments.  It would still be brute luck what genetic endowment you had.  And it would still be brute luck how your particular talents happened to fit your particular environment.  For example, how much would Michael Lewis’ particular endowments help him in modern Somalia, or 12th century England?

If you think of Shaquille O’Neal as having been lucky, not just to be over 7 feet tall but to live in a society with millions of basketball fans, you’ll have a point in mind that applies far more generally.

So for me, realizing that successful people were often lucky, in the sense of Michael Lewis and the dinner conversation with the Salomon spouse, doesn’t do that much work, for three reasons.

First, I already knew it was true.

Second, I define luck broadly enough that it had to be true.

Third, I don’t subscribe to a theory of distributive desert that’s based on inherently deserving what you’ve earned.

Instead, for me the rationale for property rights and keeping tax rates at reasonable levels is just about incentives & their effects on behavior.  But admittedly we (including I) have intuitions about desert that are not entirely reducible to this.

2. What (if anything) is wrong with high-end inequality?
In the public economics literature, often the only reason for mitigating high-end inequality is the declining marginal utility.  You’d never reduce a rich person’s wealth by a dollar unless at least a penny, or some fraction of it, was successfully transferred to someone else.  This follows from the standard assumption that people only derive utility from own consumption.

Bob challenges this approach by emphasizing the importance of status and relative position, which are affected by relative consumption.  Plus, he posits socially costly expenditure cascades from the top on down.

I myself tend to agree with these points, but I want to note a few possible objections.

First, it’s often argued that all this is just “envy” and should be discounted.  This combines a descriptive claim about people who care about relative position, with a normative claim about envy’s unworthiness to be counted.

Second, recall the old phrase “keeping up with the Joneses.” Suppose that relative position matters more laterally, between peers, than it does vertically, or from the super-rich on down.  Then we might want to tax positional goods relative to non-positional goods, but with no particular reference to rich versus poor.

One definition of positional goods might be market consumption generally, as distinct from leisure. So we might want a high rate of consumption tax, as a kind of pollution tax on negative externalities, but it wouldn’t necessarily be progressive.

Third, what if high-end inequality has positive externalities as well as negative ones? An example might be, the market for luxury goods, including high-end healthcare, leads to technological advances that then become cheap to provide for everyone.  So why limit the analysis to negative externalities from high-end inequality?

Sunday, October 23, 2016

Two upcoming panel appearances

In each of the next two weeks, I will be speaking (probably for about 15 minutes each time) on an international tax panel that is meeting in the NYC area.  In each case, I plan to post a version of my remarks here afterwards.

First, next Friday, October 28, NYU Law School will be hosting an event (as I've mentioned here previously) called Divergent Country Views of Base Erosion and Profit-Shifting.  Details available here.  I'll be moderating and commenting on a panel that meets from 8:15(!) to 9:45 am, discussing the European Commission's state aid cases.

At this session, I will not be just reprising my recent Tax Notes paper on the topic, which is available here.  For example, I will focus much more than I did in that paper on the relevance of "source" issues to the analysis.

Second, on Wednesday, November 2, from 6 to 8:30 pm, I'll be participating in a session sponsored by the New York City Bar Association (and held at the NYC Bar building, 42 West 44th Street), entitled Beyond Labels: Exploring the Revised Scope of the Final and Temporary Section 385 Debt-Equity Recharacterization Regulations.  Details are available here.

I'll be speaking towards the back end, maybe at 7:45 or so.  As we will already, by then, have extensively discussed the nuts-and-bolts aspects of the topic, I'll offer a more big-picture perspective on three issues: the use of regulations instead of legislation to address corporate inversions, issues around Treasury regulatory discretion and court challenges to regs generally, and the prospects for international tax reform that includes addressing earnings-stripping via the use of interest deductions.

Wednesday, October 19, 2016

Musical tidbit

I've started listening to Big Star's Complete Third on Spotify.  The first third of it is demos from the start of this famous and ill-fated project - stunningly beautiful solo acoustic performances by Alex Chilton of great songs that generally ended up on the album.

Tuesday, October 18, 2016

Paper on the Treasury White Paper and EU state aid posted on SSRN

With permission, I have now posted on SSRN my paper on the Treasury White Paper and the EU state aid cases, which appeared in Tax Notes and Tax Notes International on September 19 of this year. It's available here.

UPDATE: The piece was temporarily taken down by SSRN, because it requires permission from Tax Notes, which I have.  I've communicated this (with relevant proof) to SSRN, and I am hoping it will be back up soon.

FURTHER UPDATE: Ah, we're back in business.  I thnk it's the same link as previously, but just to be sure, use this.

A partly supply-side theory of Trumpism

A recent Vox column by Dylan Matthews exposes the fatuity, or at least inaccuracy, of widespread assumptions that Trump voters, however unworthy their ranting idol, have economic grievances that reflect their "living on the edges of the economy" and having been "left behind."  To the contrary, their "median household income [is] $72,000, a fair bit higher than the $62,000 median household income for non-Hispanic whites in America .... Trump support [is] correlated with higher, not lower, income, both among the population as a whole and among white people. Trump supporters were less likely to be unemployed or to have dropped out of the labor force. Areas with more manufacturing, or higher exposure to imports from China, were less likely to think favorably of Trump."

Instead, support for Trump correlates with racial resentment, which, in turn, I believe, often correlates with living in all-white communities where one doesn't actually meet or get to know African-Americans or non-white immigrants..

It's widely recognized that Trumpism also reflects people's living in a bubble where the only media or other information sources that they get to see are those confirming their ideological biases.  Needless to say, this phenomenon is not limited to Trump supporters, and it's always unhealthy even if not always this toxic.

In this regard, however, I thought of two things that might usefully be put together.  First, a shout-out to Cass Sunstein, who wrote about the self-selected media bubble phenomenon as early as 2002 in his book (the revised or "2.0" edition of which is available here).

Second, I thought of something I heard about many years ago, when the post-Yugoslavian civil war between Serbs and Croats was at its height.  I heard it said (via someone who grew up in Yugoslavia during the Tito era) that, for many years, intense Serb versus Croat ethnic identification was very much on the wane, at least in areas where members of both groups lived. It really seemed to be something from the past. There was intermarriage, people didn't strongly identify with their groups or stay away from the other one, etcetera.  But then, of course, when the larger state broke up, ambitious Serb and Croat politicians deliberately took the opportunity to stir up ethnic hatred and violence as a way of strengthening their own political positions.

The fact that this proved so successful showed that people still remembered enough of those old hatreds to be capable of sinking back into them. The haters on both sides are fully morally responsible for what they became. But it was also an act of insidious political entrepreneurship by the leaders who chose to stir up the hatred, because they saw that it would be to their advantage.

I think there is something similar going on with Trumpism.  Media entrepreneurs, from Fox News to the further-out fringes, have seen that they could build their audiences by exciting racial and ethnic hatred. Their consumers evidently decided to embrace this, but also were probably changed by exposure to it.  So one can see this in part as a John Kenneth Galbraith-type manipulative advertising story, in which the entrepreneurs take an active role in shaping people's preferences, albeit requiring those people willingly to take the first, second, and third steps themselves.

This is a point that one could add to Sunstein's analysis.  Not only do people retreat into like-minded media bubbles, thus entirely separating their realities from each others' realities, but there's an entrepreneurial environment in which extremism and hatred "sell."  Thus, powerful market incentives invite creating the sort of monstrous dysfunctionality that we see rampant in the 2016 presidential campaign.

I have no particular proposal to make about all this, but it might help one better to understand Trumpism, and in particular the nihilistic rage and hatred that seems to have consumed people who often aren't doing all that terribly.

Sleep of the innocent

Some of us are lucky enough not to know anything about our toxic presidential election.

Monday, October 17, 2016

NYU Colloquium on High-End Inequality - starting next Monday (October 24)!

Long-planned but finally approaching, our half-semester NYU Law School Colloquium on High-End Inequality is finally starting next Monday.  Robert Frank of Cornell University and I will be the co-convenors.  Sessions will meet at the main NYU Law School building, Vanderbilt Hall (40 Washington Square South) from 4:10 to 6 pm.  A small group will go to dinner after each session; those who wish to go to a particular dinner (subject to space availability) should get in touch with us.

The sessions are open to the public.  Papers should shortly become available online, but in any event we'll be sending them out in weekly emails to all who ask to be put on the email distribution list.

The schedule is as follows:

October 24 – Robert Frank, Cornell University. 5 short pieces: (1) Why Has Inequality Been Growing?, (2)Why Luck Matters More Than You Might Think, (3) Does Inequality Matter?, (4) Why have weddings and houses gotten so ridiculously expensive? Blame inequality, and (5) The Progressive Consumption Tax.  Guest commentator: K. Anthony Appiah, NYU Philosophy Department.

October 31 – Kate Pickett, Department of Health Sciences, University of York.  (1) Income Inequality and Health: A Causal Review; (2) The Enemy Between Us: The Psychological and Social Costs of Inequality (both co-authored by Richard Wilkinson).

November 7 – Ilyana Kuziemko, Princeton University Economics Department.  Support for Redistribution in an Age of Rising Inequality: New Stylized Facts and Some Tentative Explanations (coauthored by Vivekinan Ashok and Ebonya Washington).

November 14 – Alan Viard, American Enterprise Institute.  Progressive Consumption Taxation: The X Tax Revisited (chapters 1-3) (coauthored by Robert Carroll)

November 21 – Daniel Shaviro, NYU Law School.  The Mapmaker’s Dilemma in Evaluating High-End Inequality.  Guest commentator: Liam Murphy, NYU Law School.

November 28 – Adair Morse, Haas School of Business, University of California at Berkeley.  Trickle-Down Consumption (coauthored by Marianne Bertrand).

December 5 – Daniel Markovits, Yale Law School.  Meritocracy and Its Discontents.

Saturday, October 15, 2016

Where we are as a country

People at Trump rallies are openly calling for the sexual assault accusers to be jailed - as well as for Election Day violence and voter intimidation, the murder of Hillary Clinton if she wins (they might settle for jailing her if she loses), and violent revolution if she wins. Trump has also been very clear that "unfair" reporting alone is enough to render the outcome "rigged." So absent pro-Trump advance censorship he will reject the voters' verdict.

Global Tax Conference at NYU

On Friday, October 28, from 8 am to 4:30, we'll be hosting a conference at NYU Law School (in Vanderbilt Hall, room 210) entitled Divergent Country Views of Base Erosion and Profit-Shifting. This is a follow-up to the June 1 conference on OECD-BEPS that we co-sponsored in Amsterdam with that event's hosts (and co-sponsors this time as well), the Amsterdam Centre for Tax Law.  More information, including re. how to register, is available here.

The conference will feature divergent views - the title is definitely right about that - from academics, practitioners, and business people from the U.S., the EU, and Brazil, regarding OECD-BEPS, the EU state aid cases, country-by-country reporting, and less-developed-countries' issues with treaties.  Indeed, here is the schedule:

8:15 AM – 9:45 AM:  Panel 1:  European Commission State Aid Cases
Dan Shaviro (NYU Law) (moderator)
Itai Grinberg (Georgetown Law Center)
Hein Vermeulen (University of Amsterdam)
Dennis Webber (University of Amsterdam)
9:45 AM – 10:00 AM:  Coffee Break
10:00 – 11:30 AM:  Panel 2: Predictive Value of BEPS Country-by-Country Reports
Joshua Blank (NYU Law) (moderator)
Steve Wrappe (KPMG)
David Ernick (PwC)
Reena Bhatt (Geller & Company)
11:30 AM – 1:00 PM:  Lunch Break
 Afternoon Session (Vanderbilt Hall Room 204)
1:00 PM – 2:30 PM:  Panel 3: Less Developed Countries and Tax Treaties
Rick Reinhold (Willkie Farr & Gallagher) (moderator)
Steve Dean (Brooklyn Law School)
Lily Faulhaber (Georgetown Law Center)
Michael Lennard (UN – by video)
2:30 PM – 3:00 PM: Coffee Break
3:00 PM – 4:30 PM Panel 4: US Compliance with the OECD BEPS Project
Mitchell Kane (NYU Law) (moderator)
Stephen Shay (Harvard Law School)
Dennis Webber (University of Amsterdam)
Gustavo Vettori (Fundação Getúlio Vargas)
4:30 PM:  Concluding Remarks