The Nonlinear Library LW - Economics Roundup #3 by Zvi
Sep 10, 2024
31:52
Welcome to The Nonlinear Library, where we use Text-to-Speech software to convert the best writing from the Rationalist and EA communities into audio. This is: Economics Roundup #3, published by Zvi on September 10, 2024 on LessWrong.
I am posting this now largely because it is the right place to get in discussion of unrealized capital gains taxes and other campaign proposals, but also there is always plenty of other stuff going on. As always, remember that there are plenty of really stupid proposals always coming from all sides. I'm not spending as much time talking about why it's awful to for example impose gigantic tariffs on everything, because if you are reading this I presume you already know.
The Biggest Economics Problem
The problem, perhaps, in a nutshell:
Tess: like 10% of people understand how markets work and about 10% deeply desire and believe in a future that's drastically better than the present but you need both of these to do anything useful and they're extremely anticorrelated so we're probably all fucked.
In my world the two are correlated. If you care about improving the world, you invest in learning about markets. Alas, in most places, that is not true.
The problem, in a nutshell, attempt number two:
Robin Hanson: There are two key facts near this:
1. Government, law, and social norms in fact interfere greatly in many real markets.
2. Economists have many ways to understand "market failure" deviations from supply and demand, and the interventions that make sense for each such failure.
Economists' big error is: claiming that fact #2 is the main explanation for fact #1. This strong impression is given by most introductory econ textbooks, and accompanying lectures, which are the main channels by which economists influence the world.
As a result, when considering actual interventions in markets, the first instinct of economists and their students is to search for nearby plausible market failures which might explain interventions there. Upon finding a match, they then typically quit and declare this as the best explanation of the actual interventions.
Yep. There are often market failures, and a lot of the time it will be very obvious why the government is intervening (e.g. 'so people don't steal other people's stuff') but if you see a government intervention that does not have an obvious explanation, your first thought should not be to assume the policy is there to sensibly correct a market failure.
No Good Very Bad Capital Gains Tax Proposals
Kamala Harris endorses Biden's no-good-very-bad 44.6% capital gains tax rate proposal, including the cataclysmic 25% tax on unrealized capital gains, via confirming she supports all Biden budget proposals. Which is not the same as calling for it on the campaign trail, but is still support.
She later pared back the proposed topline rate to 33%, which is still a big jump, and I don't see anything there about her pulling back on the unrealized capital gains tax.
Technically speaking, the proposal for those with a net worth over $100 million is an annual minimum 25% tax on your net annual income, realized and unrealized including the theoretical 'value' of fully illiquid assets, with taxes on unrealized gains counting as prepayments against future realized gains (including allowing refunds if you ultimately make less).
Also, there is a 'deferral' option on your illiquid assets if you are insufficiently liquid, but that carries a 'deferral charge' up to 10%, which I presume will usually be correct to take given the cost of not compounding.
All of this seems like a huge unforced error, as the people who know how bad this is care quite a lot, offered without much consideration. It effectively invokes what I dub Deadpool's Law, which to quote Cassandra Nova is: You don't f***ing matter.
The most direct 'you' is a combination of anyone who cares about startups, successful private businesses or creation of value, and anyone with a rudimentary understanding of economics. The broa...
I am posting this now largely because it is the right place to get in discussion of unrealized capital gains taxes and other campaign proposals, but also there is always plenty of other stuff going on. As always, remember that there are plenty of really stupid proposals always coming from all sides. I'm not spending as much time talking about why it's awful to for example impose gigantic tariffs on everything, because if you are reading this I presume you already know.
The Biggest Economics Problem
The problem, perhaps, in a nutshell:
Tess: like 10% of people understand how markets work and about 10% deeply desire and believe in a future that's drastically better than the present but you need both of these to do anything useful and they're extremely anticorrelated so we're probably all fucked.
In my world the two are correlated. If you care about improving the world, you invest in learning about markets. Alas, in most places, that is not true.
The problem, in a nutshell, attempt number two:
Robin Hanson: There are two key facts near this:
1. Government, law, and social norms in fact interfere greatly in many real markets.
2. Economists have many ways to understand "market failure" deviations from supply and demand, and the interventions that make sense for each such failure.
Economists' big error is: claiming that fact #2 is the main explanation for fact #1. This strong impression is given by most introductory econ textbooks, and accompanying lectures, which are the main channels by which economists influence the world.
As a result, when considering actual interventions in markets, the first instinct of economists and their students is to search for nearby plausible market failures which might explain interventions there. Upon finding a match, they then typically quit and declare this as the best explanation of the actual interventions.
Yep. There are often market failures, and a lot of the time it will be very obvious why the government is intervening (e.g. 'so people don't steal other people's stuff') but if you see a government intervention that does not have an obvious explanation, your first thought should not be to assume the policy is there to sensibly correct a market failure.
No Good Very Bad Capital Gains Tax Proposals
Kamala Harris endorses Biden's no-good-very-bad 44.6% capital gains tax rate proposal, including the cataclysmic 25% tax on unrealized capital gains, via confirming she supports all Biden budget proposals. Which is not the same as calling for it on the campaign trail, but is still support.
She later pared back the proposed topline rate to 33%, which is still a big jump, and I don't see anything there about her pulling back on the unrealized capital gains tax.
Technically speaking, the proposal for those with a net worth over $100 million is an annual minimum 25% tax on your net annual income, realized and unrealized including the theoretical 'value' of fully illiquid assets, with taxes on unrealized gains counting as prepayments against future realized gains (including allowing refunds if you ultimately make less).
Also, there is a 'deferral' option on your illiquid assets if you are insufficiently liquid, but that carries a 'deferral charge' up to 10%, which I presume will usually be correct to take given the cost of not compounding.
All of this seems like a huge unforced error, as the people who know how bad this is care quite a lot, offered without much consideration. It effectively invokes what I dub Deadpool's Law, which to quote Cassandra Nova is: You don't f***ing matter.
The most direct 'you' is a combination of anyone who cares about startups, successful private businesses or creation of value, and anyone with a rudimentary understanding of economics. The broa...